"Thanks primarily to growth in our interactive operations and a continued emphasis on expense reductions, we achieved about the same net revenues and Adjusted EBITDA as in the third quarter of 2011, despite more competitive markets and the challenges posed by the continuing weakness of the U.S. economy. Reflecting the sluggish economic conditions, customer visitation declined in all regions and spend per trip declined in several regions. However, Las Vegas saw a nearly 8% increase in per trip customer spending and Iowa-Missouri and Louisiana-Mississippi experienced modest increases in spend per trip."


- Gary Loveman, Caesars Entertainment chairman, chief executive officer and president




  • AC properties are closed but none of them have suffered material damage. Hope to reopen in the next several days.
  • PA reopened this morning
  • They do not expect to exceed their deductible insurance
  • Will convert Bill's Gamblin' Hall and Saloon property into a boutique lifestyle hotel
  • Pursuing a plan to attract more mid-week meeting business by constructing a convention center. Will seek financing from the city.  
  • Enhancing their website to help with online bookings
  • Very active in using social media as a marketing tool and are expanding mobile applications onsite
  • Horseshoe Cleveland:  welcomed over 2MM members since opening
  • MA:  preparing their JV bid with Suffolk Downs
  • Focused on gaming legalization in several states 
  • LV:  Cash ADR decreased by 2.2% with occupancy in the mid-90s
  • AC:  Benefited from lower property taxes and margin improvements through cost saving initiatives
  • 250 rooms that were out of service at their Biloxi property that have recently reopened 



  • Booked estimates of the St Louis divestiture.  The prior estimate needed to be adjusted and they booked the adjustment this Q. The Region would still have been slightly EBITDA positive without the adjustment.
  • Group business in 4Q12 in LV? Doesn't think that they will see a large difference in the 4Q vs. 3Q
  • They are looking to sell the golf course in Macau; any proceeds need to go to CEOC.
  • Capex guidance: $520-560MM for 2012.  2013 will have higher capex than 2012 - a lot in Las Vegas
  • Cash outlays for Baltimore will not be significant
  • High end strength in LV on the international side but promotional expenses were also higher. Generally, reinvestment in the high end international are higher than other players, but in this quarter the two are not correlated.
  • Managed category increase is due to Cleveland.  Employees are CZR's employees - they book revenue and expenses there and will have the same treatment for the other Ohio properties.
  • Did hold have any meaningful impact on the quarter? No.
  • They are trying to staff much more efficiently to compliment demand patterns
  • Experienced $50.8MM of cost savings in the Q and identified $204.3MM of future cost savings (marketing efficiencies, tax strategies)
  • Did not buy back any debt in the quarter
  • Expect an increase in ADRs post room renovations in LV
  • Feel like they are close to a CFO hire
  • Have nothing to announce on the London Clubs



  • Trips across all regions decreased in the third quarter of 2012 when compared with the same period in 2011, resulting in a decline of 4.9% on a consolidated basis, due mainly to economic and competitive pressures as well as hurricane-related property closures in the Louisiana/Mississippi region in August 2012.  The overall increase in spend per trip in the third quarter of 2012 was attributable to a large increase in the Las Vegas region due primarily to strength in the international high-end segment, as well as modest increases in the Iowa/Missouri and Louisiana/Mississippi regions
  • In August 2012, we issued $750 million in new debt due 2020, with proceeds used to refinance debt maturing in 2014 and 2015 and to increase liquidity. In conjunction with this transaction, which closed in October, we extended the maturity of approximately $958 million of term loans from 2015 to 2018 and beyond, and repaid approximately $479 million of term loans under our credit facilities.  
  • Challenging macro conditions and new competitors negatively impacted some of their regional results. Our consortium with Rock Gaming and others is proceeding with plans to open a gaming facility in Baltimore in the middle of 2014, and we will apply for a license to build a full-scale gaming-destination resort in Boston in an alliance with Suffolk Downs. We've also begun booking meetings and conventions for the spring 2013 opening of the new $450 million. Horseshoe Cincinnati being developed by Rock Ohio Caesars LLC, a joint venture in which we have a 20% ownership interest."
  • "During this quarter, we expect to complete the previously announced sale of Harrah's St. Louis for $610MM and plan to use the proceeds from the sale to reinvest in our core properties and invest in growth opportunities. One example is our anticipated renovation and rebranding of the Imperial Palace, which we are renaming The Quad. We expect to upgrade significant portions of that property, including the casino, public spaces and guest rooms. The reconfiguration of the casino and its entrances will enable direct access from the Linq and make the Quad what we believe to be one of the most easily accessible casinos on the Strip."
  • LV: 
    • "Increased casino revenues were mostly offset by decreases in food and beverage and other revenues combined with higher promotional allowances."
    • "Revenues rose slightly, despite the negative impact on results caused by Project Linq construction activities, including the closure of O'Shea's casino in May 2012, the closure of several retail outlets at Harrah's Las Vegas and the ongoing renovation of the Imperial Palace, which the Company estimates to have reduced net revenues by approximately $10 million to $15 million."
    • "Trips were relatively flat, while spend per trip increased 7.8%, due primarily to strength in the international high-end segment."
    • "Hotel revenues in the region were relatively flat.... due in part to the 662 additional Octavius Tower rooms, offset by a decrease in cash average daily room rates...and a decrease in total occupancy."
  • AC: 
    • Revenues decreased "due mainly to lower casino revenues, largely resulting from a decline in trips. Trips by lodgers and non-lodgers declined 4.5% and 5.1%, respectively...due mainly to new competition in the region. Spend per trip for lodgers and non-lodger decreased 2.8% and 4.1%, respectively."
    • "Expects the market to continue to be challenged by local and regional competition."
    • "Property EBITDA increased ....due mainly to decreased property operating expenses resulting from cost savings initiatives and lower property tax assessments"
  • LA/MS:
    • "Revenues were negatively impacted by the closures of two casinos in the region as a result of Hurricane Isaac in August 2012, which contributed to a 6.2% decline in trips."
    • "Loss from operations was $183MM...  non-cash intangible asset impairment charges of $176.0 million, as well as a non-cash tangible asset impairment charge of $13.0 million and a $20.2 million charge for exit activities related to the halted development project in Biloxi, Mississippi."
    • "Estimates that the negative impact of Hurricane Isaac on its income from operations and Property EBITDA was approximately $4 million"
  • Iowa/Missouri:
    • Revenues declined "due mainly to a decline in casino revenues resulting from new competition in the Kansas City market"
    • "Income from operations and Property EBITDA increased... due mainly to a reduction in property operating expenses resulting from the refinement of estimates of costs remaining in the discontinued operations of the Harrah's St. Louis casino as a result of the imminent closing of the transaction."
  • IL/ IN:
    • "2012 net revenues... increased slightly. Spend per trip declined while increased competitive pressures in the region resulted in fewer trips, despite the reopening earlier this year of the bridge that allows direct access by customers to the Company's Southern Indiana property, which closure affected the property starting in early September 2011."
    • "Income from operations for the third quarter of 2012 increased...  due mainly to higher revenues together with reduced property operating expenses as a result of cost savings initiatives. The increase in Property EBITDA reflects higher revenues and reduced property operating expenses"
  • Other Nevada: 
    • 3Q net revenues decreased ... "due mainly to a decline in casino revenues. Trips to the properties in the region, as well as spend per trip, declined... due to local competitive pressures, and the Company expects the market to continue to be challenged." 
    • "There was a loss from operations of $75.2 million..... due mainly to non-cash intangible asset impairment charges of $103.0 million."
    • "Property EBITDA decreased slightly... due mainly to the income impact of lower revenues, partly offset by reduced property operating expenses."
  • Managed, International & Other
    • "Net revenues ....increased.. 40.3%... due primarily to higher revenues associated with the Company's growing interactive operations. Net revenue increases were also attributable to the opening of a new managed casino, Horseshoe Cleveland, which began operations in May 2012, including an increase in reimbursable expenses for Horseshoe Cleveland that is presented on a gross revenue basis, thus resulting in an increase in net revenues and an equally offsetting increase in operating expenses."
    • "Loss from operations increased.... due mainly to non-cash intangible asset impairment charges of $124.0 million... and increased corporate expenses. Increases in corporate expenses were attributable to the consolidation of certain functions at corporate, and increased stock-based compensation expense." 
  • "Interest expense, net of interest capitalized, increased by $65.4 million, or 14.5%... due primarily to  higher interest rates as a result of extending the maturities of the Company's debt combined with higher debt balances compared with the year-ago quarter, and a $66.2 million decrease in mark-to-market gains on derivatives resulting from $6.2 million of gains in 2012 compared with gains of $72.4 million in 2011, partially offset by $33.9 million of lower amortization of deferred losses in accumulated other comprehensive loss.
  • Capitalized interest in 3Q: $9.5MM
  • "The effective tax rate benefit for the quarter ended September 30, 2012 and September 30, 2011, was 30.8% and 29.6%, respectively.  The reason for the increase in the quarterly rate at September 30, 2012 is that the negative impact to the 2012 rate, which is primarily caused by nondeductible goodwill impairments, was relatively less than the negative impact to the 2011 rate, which was primarily caused by nondeductible foreign losses and nondeductible losses on company-owned life insurance policies"



In preparation for LVS's 3Q earnings release Thursday, we’ve put together the recent pertinent forward looking company commentary.








  • "Phase IIB [SCC] will open progressively starting in October, with the vast majority really kind of after the 1st of the year, with another 2,000 hotel rooms."
  • "We think that we've got some opportunities to grow margins obviously with the initial margin at the Sands Cotai Central being a little bit below what our historical margins are at the Venetian as a result of the mix of business being more heavily weighted toward VIP. We think as the mass market grows, both at Sands Cotai Central and really across the portfolio of properties in Macao, with the mass margins being significantly higher than the VIP margins, that we would anticipate margin expansion on a consolidated basis."
  • "The Sands Cotai Central spending stretches out into that kind of 2014, early 2015 timeframe. That's mostly as a result of retainage payments. The vast majority of the spending would be completed by 2013, a little bit into 2014, and then retainage payments after that."
  • [Parisian] "We expect to spend approximately $600 million and then in 2014, about $1.2 billion, if will, on the Parisian, with the remaining spending in 2015 and then a tail of that into 2016."
  • SCC: "The hotels are enjoying strong occupancy, including 61% in April, 74% in May, 85% for the month of June, and the ramp continues into July."
  • "The air conditioned walk-over bridge connecting the Venetian and Four Seasons to Cotai Central opens in January of 2013."
  • [Premium mass]  "We believe that that segment will continue to grow and we believe we'll be a player in each of the three sub segments because of the amount of tables we have to offer, the rooms, the retail, especially Sands Cotai Central is built for that." 
  • "We've continued to collect from the junkets as we have in the past and really see no deterioration from that perspective. Our reserves are growing a little bit just from a prudency standpoint. Against that total amount of receivables, we've got about a 15% reserve that's outstanding."
  • [Promotional environment] "Junket segment has remained pretty much fixed.  There's competition on the slot, ETG and mass table side.  We haven't seen evidence of that, but it makes sense to me that they will be moving in that direction because that's where the growth is." 


  • "We've got about $192 million in reserve, or about 1.9% of the total credit draw, which gives you an idea of really how small the potential for bad debt really is. That reserve's about 29% of receivables, excluding open programs and less than 30 days accounts outstanding, and then additionally, life to date, the reserve is about 6.9% of rolling win, which is within the range we've discussed before....We're not going to change our credit policies and change our promotional policies. We stay consistent."
  • "The number of Singaporeans that come into the property is approximately 25%."


  • "Group rooms business and pricing is picking up for 2013. We are investing for the future in Las Vegas, renovating 1,000 rooms in our Venezia tower, remodeling and redesigning the gaming floor at the Venetian, and introducing a whole new entertainment offering in the fall."
  • "With the redemption of the preferred stock in November of last year, that will benefit, obviously, the 2012 earnings per share numbers, all leading towards a strong EPS growth."
  • "In 2012, probably expect to have maintenance capital between $450 million and $500 million and then going to 2013 and 2014, about $450 million each, and that's really spread around the portfolio of properties that we have."
  • "With regard to Spain, obviously, we would need to see enabling legislation. We would like to see clarity with regard to kind of the economic situation there."


In preparation for WMS's F1Q 2013 earnings release Thursday, we’ve put together the recent pertinent forward looking company commentary.




  • "We expect economic conditions and the gaming industry sentiment to remain challenging....We believe it will take several quarters of meaningful improvements in general economic conditions before we see operator confidence build to the point where they're notably increasing annual capital budgets, and right now we're not expecting such a rebound."
  • "We expect to see little, if anything, in meaningful improvement in the replacement market in fiscal 2013 compared to fiscal 2012. In addition, we continue to expect an overall reduction in demand for shipments to new casino openings and expansions over the next 12 months."
  • "For our first quarter, we expect revenues to approach the levels of revenues in the September 2011 quarter with stronger revenue growth in the back half of the fiscal year."
  • "We expect R&D in fiscal 2013 to increase to a range of 15% to 16% of revenues and that SG&A depreciation will also increase as a percentage of revenues."
  • "We expect to continue to maintain particular emphasis on increasing the mix of Wide Area Progressive units and our proprietary Adaptive Gaming technology units." 
  • "Given the current marketplace environment coupled with the expected range of VLT pricing and ongoing market pressures, average selling price in fiscal 2013 is likely to see greater variability on a quarterly sequential basis depending on the product mix in the given quarter. On a quarterly basis, we expect fiscal 2013 will follow the path over the last several years with September being the quarter with the lowest revenues and operating margin followed by sequential growth expected in each of the subsequent fiscal quarters."
  • "Our floor share of new casinos continues to average in the high teens."
  • "We believe our success with conversion kit sales reflects the improvements in game content and, most importantly, results in the ongoing upgrade of our game content across existing casino floors, a key goal in addressing our customers' focus on earnings performance."
  • "With a healthy number of open orders for participation units, we expect growth in the installed participation footprint in fiscal 2013. We do expect aggregate capital spend on gaming operations equipment and property, plant and equipment to decline in fiscal 2013 by 20%. The participation footprint expansion, coupled with placements of VLTs in Illinois, of gaming machines on operating leases and the completion of two large PP&E projects in early fiscal 2013 will continue to drive higher depreciation in fiscal 2013."
  • "We expect the increased spending on operating expenses will largely offset the increased gross profit contributions from higher revenues in fiscal 2013."
  • "During the June quarter as well as throughout fiscal 2012, we used our financial flexibility to support our customers in their purchase of new gaming machines to refresh their casino floors. In light of their constrained capital budgets, we believe this to be a prudent and practical use of our financial strength and we expect this to continue throughout fiscal 2013. We have continued to experience bad debt expense at 1% or less of revenues and our percentage of age notes over 90 days remain below our competitors, so we will continue to use prudence and discipline in the granting of credit."
  • "Our social gaming pursuits were bolstered by the Phantom EFX acquisition and we recently directly published a suite of slot-based games with our Jackpot Party Casino on Facebook. I'm pleased to note that the initial beta results are far exceeding our expectations."
  • "The competitive pressures from a [participation] product standpoint have never been this aggressive.... the for-sale product business is very competitive as well." 
  • "In Q4 we saw a $700 increase quarter over quarter, which we expected. I don't think you'll see any major upticks or downticks in the pricing going forward. I think when we have our new cabinets coming out next fiscal year, there will be an opportunity for us to look at price again and hopefully the market conditions will be more improved there."
  •  [Flattish EPS FOR 2013?]  "We didn't give that guidance, but if you are interpreting that literally, it's probably pretty close."
  • "So I think ASP, the upside is limited for fiscal 2013 on ASP. But I do believe that in the second half of the year when we launch our new products and cabinets and form factors, we'll have an ability to see an uptick in our pricing. But I'm not sure, given the first half, if it will offset it enough."

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.52%
  • SHORT SIGNALS 78.67%

Starbucks As a Macro Play?

Takeaway: The top-line performance of Starbucks ($SBUX) is highly levered to the strength of the US economy.

Starbucks releases its earnings tomorrow, and our Restaurant sector research team expects the company to report a shortfall versus both sales and earnings estimates for the quarter.


As the chart below suggests, Starbucks sales are highly levered to employment and the overall health of the economy. Industrial production is a good proxy for the overall health of the US economy.


Starbucks As a Macro Play? - star

Gas Prices and Hurricanes

Takeaway: Here’s a look at how gas prices moved following Hurricane Irene and potential implications post Sandy.

Below is a chart that shows how gasoline prices (both NYMEX RBOB gasoline and the retail price in the Northeast) acted into and out of Hurricane Irene last year.


Note the post hurricane spike in prices, like we are seeing today with RBOB, which was followed by a slow, steady decline.


Note also that while the trade commodity price can be quite volatile, the consumer doesn’t really see that volatility as prices at the pump generally follow on  a one to two week lag.


Irene was a very different event than Sandy, so the effects could be more pronounced this time.


Gas Prices and Hurricanes - gas


Takeaway: A Q3 miss and sluggish Q4 RevPAR guidance. While management asserted that trends have picked up in Q4, they said the same thing last Q.

In an effort to evaluate performance and as a follow up to our YouTube, we compare how the quarter measured up to previous management commentary and guidance




  • WORSE:  EBITDA was worse than expected and we expect Q4 will be no different.  Management did say that trends were better thus far in Q4 but they said the same thing on their Q2 conference call regarding Q3 - and look how that turned out.


  • WORSE:  Most Strip properties reported a slight decrease in REVPAR for 3Q which was expected.  However, management had previously indicated that Q3 was an anamoly.  However, MGM says 4Q REVPAR will only be flat to slightly up for 2012, depending on Sandy impact.
  • PREVIOUSLY:  "We also experienced slower than anticipated in the year, for the year convention bookings during that brief period. And based on these current trends, we expect RevPAR in the third quarter will be slightly down."


  • WORSE:  August was a rough month, but in the second half of September, business rebounded and that trend has continued into October.  Despite a 1% increase in hold on the Strip, casino revenue only increased 2% YoY. Slot revenue was up 1%. 
  • PREVIOUSLY:  "We've already seen an improvement in customer trends here in the third quarter....So, we think the trends will be moderately up year-over-year for the balance of the year on visitors."


  • SAME:  There will be 15% more arena events in 2013 vs 2012. 2014 booking trends are stronger than that seen in 2013.  Convention bookings pace is up 10% YoY for 2013.
  • PREVIOUSLY:  "The softness we experienced during the second quarter for convention bookings in the year, for the year has not impacted long-term bookings. In fact looking out into 2013, we're encouraged to see convention bookings, the pace being up year-over-year and although it's still early, 2014 pace is even stronger."


  • SAME:  MGM Grand remodel program was completed in September.  Bellagio's Spa Tower remodel will be finished in mid-December. 
  • PREVIOUSLY:  "Our MGM Grand room remodel continues to progress with approximately 3,300 rooms completed. The project is on schedule for a September completion date. In the fall, we will begin the remodel of the Bellagio Spa Tower rooms, which will cost us approximately $40 million and is included in our full-year capital budget. The room remodel will begin here in August and be completed right before the holidays later on this year. We will begin remodeling the rooms of THE hotel in mid 2013. And through the Light Group, a subsidiary of Morgans, we will be introducing three new restaurants and a cutting-edge new nightclub, injecting some fresh energy into Mandalay Bay."


  • SAME:  MGM continues to expect $350-360 million in FY 2012 capex for the US - $80 million for MGM Macau and $80 million for MGM Cotai, which includes $56 million paid for the land concession contract.
  • PREVIOUSLY:  "We continue to expect our CapEx for the full year to be approximately $350 million." 


  • BETTER:  At the end of September, MGM completed their VIP gaming expansion project on Level Two and opened the business just before the government week holiday. During the holiday period, our VIP business generated several record single-day volumes with the addition of the space.
  • PREVIOUSLY:  "On the gaming front, we are working to complete our Level Two expansion. This project will deliver a high-quality product to house over 40 VIP gaming tables. The project is expected to be completed in early fourth quarter."


  • BETTER:  FTEs fell 2% in 3Q.  Stock comp, D&A, and interest expense all came in better than expected (chart below)
  • PREVIOUSLY:  "So, I think you saw that we're getting decent flow through at some of our properties, especially if you kind of figure out the hold on it. Our FTEs are flat. We're managing our expenses in other ways where we can, and we're very, very focused on driving free cash."



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