Strong margins pushed EBITDA in-line with recently reduced consensus but above our estimate.


"We are encouraged that year over year revenue, EBITDA and margin performance improved as the first quarter progressed, with the stronger trends seen in March continuing in April. We are optimistic that improving fundamentals and a continued focus on cost control and profitable revenue growth initiatives will drive improved operating performance as we progress through 2013."


- Anthony Sanfilippo, President and Chief Executive Officer of Pinnacle Entertainment   




  • Softness in January/February with rebound in March and postive trend has continued into April
  • Marketing reinvestment as % of revs was unchanged YoY and -130bps QoQ
    • L'Auberge Baton Rouge marketing spend was 150bps lower QoQ
    • Trips were lower while spend per visit was flat in Jan/Feb; March saw improvement in both categories as they came back close to 2012 levels
    • Double digit growth in top 3 tiers
  • L'Auberge Lake Charles: 16% YoY room nights out of service in 1Q (particularly impacted weekends)
  • Belterra: market very competitive; just completed renovated buffet
  • March/April guest experience has been pleasant
  • On track to close ASCA acquisition; beginning the state-by-state approval process--starting with NV Gaming Board; another regulatory hurdle is the FTC
  • Will continue to focus on reducing debt
  • L'Auberge Baton Rouge:  27,000 first-time visitors; repeat visit rate has been 50% 
  • St. Louis:  considerable softness; disciplined cost control and rational marketing spend at Lumiere and River City; 
  • Southern Indiana: soft in 1Q, down 13% YoY; Columbus competition affecting visitation; Horseshoe Cincinnati impact too early to say but so far impact has been muted
  • Belterra hotel renovation project later in 2013 


  • Recently opened up permanent paviliion that leads into River City casino
  • Four Seasons at Lumiere: has increased regional advertising, attracting non-local visitors
  • 1Q Pre-opening expense:  legal bills associated with ASCA transaction
  • [Margins] "What we're doing is sustainable"
  • Should see op margins improve at Baton Rouge
  • Remaining ACDL challenges:  operating plan to manage the resort; still need resumption of funding from banks; still need working capital for 1st resort
    • PNK not exactly confident ACDL will open
  • Capex River Downs:  $209MM budget; capex will start trending up when building comes out of the ground.  4Q/1Q 2014 will take the bulk of the capex spend.
  • AC transaction: may close in 3Q
  • Happy that Ohio Racing Commission approved request to race at Beulah Park. 
  • Nothing unusual on hold at Baton Rouge
  • Texas legislation: unlikely
  • Ohio internet cafe crackdown:  not sure of impact on River Downs
  • Post-closing ASCA transaction leverage:  PNK expects 'sizable FCF, significant NOL for tax purposes. 3.5-5.0x target leverage.  Would like to get to <4.0x in a few years.
  • No comment on potential selling ACDL interest



  • "The operating environment was challenging in the 2013 first quarter, with economic pressure from the payroll tax increase and the delay in tax refund checks dampening business volumes at our casinos. We worked diligently to control costs and increase marketing and operating efficiency across the system during the first quarter, which helped reduce the impact of soft demand trends on the cash flow our assets produce"
  • ASCA acquisition update:
    • On April 25, 2013, Ameristar stockholders approved the acquisition. The Company continues to expect the transaction to close in the second or third quarter of 2013, subject to closing conditions, including the receipt of required regulatory approvals.
    • On April 2, 2013, Ameristar Casinos successfully completed a consent solicitation relating to its 7.50% Senior Notes due 2021 for a consent fee of $19.00 for each $1,000 in principal amount of notes, 50% of which was paid shortly after the expiration of the consent solicitation. The Company paid $9.8 million for the initial portion of the consent fee payments in April 2013, with the balance expected to be paid to bond holders upon closing the transaction. Following this consent, the Company now expects to complete the Ameristar merger using a simplified structure, which provides for a singular, unified capital structure for the combined companies.
    • "We have spent the past few months doing more detailed integration planning and analysis, and have grown increasingly confident in the scale benefits and synergy opportunities the combination of the two companies will create. We are confident we can achieve at least $40 million of synergies and efficiencies of scale between the two companies."
  • Consolidated Adjusted EBITDA margin decreased... principally due to L'Auberge Baton Rouge still being in its operational ramp up period
  • Loss from continuing operations was negatively affected by the $92.2 million non-cash impairment charge related to the Company's investment in ACDL, pre-opening and development costs primarily associated with the Ameristar acquisition, increased interest expense related to a bond offering and term loan completed in March 2012, and generally soft economic conditions, particularly during the first two months of the 2013 first quarter.
  • L'Auberge Lake Charles: 
    • Began the first phase of an extensive room-remodeling program in the 2012 fourth quarter, which continued into the 2013 first quarter and was completed in April of 2013. During the 2013 first quarter, the room remodeling program displaced approximately 13,631 available room nights at the property. The property anticipates beginning the second phase of the room-remodeling program in the Fall of 2013, which will renovate the remaining 240 rooms and is expected to be completed in the first half of 2014.
    • "L'Auberge Lake Charles experienced significant disruption from the execution of the first phase of its room renovation program, which displaced approximately 16% of its available room nights on a year over year basis and exacerbated the generally soft market conditions the property experienced for the first two months of the first quarter. A focus on expense discipline and marketing efficiency mitigated some of the impact that the decline in revenues had on the property in the first quarter. Operating trends in Lake Charles improved in March, and stronger business volumes continued in April. We are optimistic that the elimination of disruption from the property's renovation program in April, coupled with generally improved market conditions and a continued focus on operational efficiency, will permit the property to resume growth as we progress through the seasonally stronger Spring and Summer months."
  • The St. Louis segment experienced generally soft market conditions. Expense discipline limited the impact of revenue declines on Adjusted EBITDA and permitted year over year margin expansion in the segment.
  • The year over year decline in Boomtown New Orleans' 2013 first quarter revenues was driven principally by lower gaming volumes, but cost containment and increased marketing efficiency implemented at this property limited the impact this had on Adjusted EBITDA and margins.
    • "A new leadership team assumed the operation of Boomtown New Orleans in the 2012 fourth quarter, and we are proud of the progress our team members there have made in stabilizing and improving the business. Gaming revenue performance of the property improved in each successive month of the 2013 first quarter, and this improvement continued into April. In addition, significant progress was made in streamlining the operating expense structure of the property, while simultaneously improving service levels and the quality of the property and guest experience. As we progress through 2013, Boomtown New Orleans will continue its focus on operational efficiency and driving profitable revenue growth."
  • We are very pleased with the initial performance of L'Auberge Baton Rouge, particularly during its second full quarter of operation. The property saw its gaming volumes increase in each month of the 2013 first quarter, with record gaming revenue and Adjusted EBITDA performance in March. Cash non-gaming revenues have been very strong since the inception of operations, and the property's mychoice player loyalty database grew 40% in the 2013 first quarter. "We expect L'Auberge Baton Rouge to continue to ramp up its operations and Adjusted EBITDA production in 2013, particularly through growth of gaming volumes from regional high-end players, further database growth and continued rationalization of its operating expense structure."
  • Belterra's 2013 first quarter Adjusted EBITDA was negatively affected by lower gaming volumes, elevated repair and maintenance expenses, new competition in several of its Ohio feeder markets, and the closure of two food and beverage outlets for remodeling. The property's newly renovated buffet re-opened on March 13, 2013. The second food and beverage outlet is expected to open in the second quarter of 2013.
  • The reduction in 2013 first quarter corporate overhead expense was driven principally by efforts to eliminate non-value added expenses at the Company's Las Vegas headquarters, as well as a ramp up of cost savings and property allocations.
  • River Downs:
    • Demolition of the existing grandstand and related facilities was completed in the 2013 first quarter, and construction of the new gaming entertainment center commenced in the 2013 first quarter with the placement of foundation pilings. 
    • The project budget remains $209 million, excluding license fees, original acquisition costs and capitalized interest, and we plan to open the facility in the second quarter of 2014.
  • "The expansion of River City in St. Louis remains on budget and is on schedule. We expect the event center to open in June of 2013, and the 200-room hotel to commence operations by the Fall of 2013. The opening of the garage has alleviated pressure on parking availability at the property, and we look forward to the hotel and event center rounding out River City's amenity set as those elements come online in 2013. $56.5 million of the $82 million budgeted for this project had been incurred through the 2013 first quarter."
  • "In New Orleans, we commenced construction of a $20 million, 150-room hotel. We expect the hotel to open in the second quarter of 2014, and to round out the amenity set and improve the geographic reach of Boomtown New Orleans."
  • On March 4, 2013, ACDL received notice from MGM Hospitality of its decision to terminate its contract to operate Phase 1 of ACDL's Ho Tram Beach development in the Southeast coast of Vietnam, effective June 2, 2013. On April 5, 2013, ACDL received the formal approval from the Government of Vietnam of its requested amendment to its Investment Certificate. Significant risks and challenges remain to opening Phase A1 of the Ho Tram Beach development, as well as subsequent phases of the master plan for Ho Tram Beach. These include the manner in which the Phase A1 resort will be opened and operated, the resumption of funding by its Vietnamese bank syndicate, securing a working capital facility to operate the Phase A1 resort, securing additional funding needed to complete the remaining elements of the Ho Tram Beach master plan, and remaining in compliance with its amended investment certificate. As a result of the current circumstances, the Company recorded an impairment charge of $92.2 million, writing down the remaining asset carrying value of its investment in ACDL.
  • In the 2013 first quarter, the Company entered into an amended definitive agreement to dispose of its land holdings in Atlantic City for total consideration of approximately $30.6 million. The transaction is subject to a financing contingency. The transaction is now expected to close by the end of the 2013 third quarter.
  • Capital expenditures: $39 million; cash expenditures totaled $15.6 million for the River City expansion, $4.4 million for the River Downs redevelopment, and $11.6 million for the Lake Charles and Belterra remodeling projects. Excluding land and capitalized interest costs, approximately $56.5 million of the $82 million budget for the River City expansion project and $7.5 million of the $209 million budget for the River Downs redevelopment has been incurred.
  •  Capitalized interest in the 2013 first quarter was $0.4 million versus $5.4 million in the prior year period.

OIL: Dog Days Ahead?

Brent crude oil is down for the second day in a row as global supply rises. Down -2.5% this morning to $99.85 a barrel, the commodity has crossed below the all-important $100/barrel mark. Considering this is happening on a day where the US dollar is down (dollar down, commodities up and vice versa), when the US dollar catches a bounce and heads back up, oil and gold are likely to take another multi-percentage point hit. Lower oil prices are a boon for the American consumer. No one likes paying high gas prices at the pump.


OIL: Dog Days Ahead? - 3mo brentoil

Corn: Taking A Cut

Oil isn't the only commodity having a down day; corn is taking a beating, down nearly -5.8% this morning to $6.40 a bushel. Corn and other agricultural names like wheat and soybeans put in their all-time highs last summer, so with the strong dollar vanquishing the great commodity bubble that was brought forth by the policies of the Federal Reserve, it should come as no surprise that corn is heading lower week-after-week. This is a big plus for our consumption = growth thesis considering how widely used corn is among different food products.


Corn: Taking A Cut - CORN6mo

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ENR - Big Beat on EPS, But No Flow Through

ENR reported a big beat versus consensus this morning, $1.80 versus $1.27, but oddly didn’t take the opportunity to increase its full-year guidance (remains $6.75 to $7.00).  Odder still, the maintained guidance range includes a higher level of cost savings – to a range of $50 to $60 million from the prior range of $25 to $35 million.  We expect a positive stock reaction given the magnitude of the EPS beat, but that the reaction should be muted given the lack of flow through to full-year EPS and the likely need for negative EPS revisions in 2H.

What we liked:

  • Big beat versus consensus
  • Increased annual cost savings target (to a range of $50-$60 million from $25-$30 million)
  • Increased total project cost savings target to $225 million from $200 million
  • Very good gross (+148 bps) and operating (+398 bps) margin performance
  • A promise to increase advertising and promotion spending in 2H

What we didn’t like:

  • No flow through to full year guidance on huge EPS beat and higher annual cost savings, implying a material reduction to 2H consensus
  • Lackluster (+0.3%) currency neutral sales growth
  • Advertising and promotion expenses declined 8.2% in the quarter after declining 1.7% in Q1
  • Weird revenue guide down in the Personal Care segment (to low single digit increases from prior mid-single digit sales growth), but only reflects 1H weakness, as the company expects 2H sales growth in the 3-5% range – so a call for material improvement in sales trends in this segment
  • Company is still anticipating low single digit sales declines in Household Products, but an odd Q4 2013 call out of weakness

Bottom line, sales trends remain anemic, but cost savings provide substantial income statement flexibility.  The name isn’t particularly expensive on consensus numbers (14.1x calendar ’13) but our issue is that we have a difficult time seeing any opportunity for material EPS growth once cost savings have run their course.   The battery category remains challenging, and beyond that we don’t see the opportunity for sustained growth in the company’s other categories.


Call with questions,



Robert  Campagnino

Managing Director





Matt Hedrick

Senior Analyst

Morning Reads From Our Sector Heads

Keith McCullough (CEO):


Russia’s 20 Biggest Billionaires Keep Riches From Putin (via Bloomberg)


Fed Seen Slowing Stimulus With QE Cut by End of This Year (via Bloomberg)


Josh Steiner (Financials):


Paulson Leads Hedge-Fund Lobby Push to Privatize Fannie (via Bloomberg)


If the Federal Reserve ain’t broke, don’t fix it (via FT)


US banks: breaking up is hard to do (via FT)


Brian McGough (Retail):


Top Retail Executives Weigh In on the Customer (via WWD)


Jay Van Sciver (Industrials):


ADT Reports Second Quarter 2013 Results (via ADT)


Kevin Kaiser (Energy):


Brent Crude Drops a Second Day as Global Supplies Climb (via Bloomberg)


Matthew Hedrick (Europe):


Italian PM launches opening salvo against austerity - but where will the cash come from? (via Open Europe Blog)


Bailout scrapes through parliament (via Cyprus Mail)



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




  • [MGM Cotai] "We remain on track, as we've said before, for an early- to mid-2016 opening."
  • "Last quarter, a referendum was passed in Prince George's County in Maryland, and we are now in the RFP process for what would be a very lucrative fixed license in Maryland. We have a deadline... of May to submit our proposal. We will easily meet that deadline. We believe that we will prevail for an MGM at National Harbor, which is a tremendous destination resort, literally minutes from our nation's capital. A decision on that by the State of Maryland will be before the end of the year, we expect." 
  • "Our international casino business continues to be strong, as this was a record fourth quarter for our Strip properties when you include ARIA for both the international drop and win. We're seeing some encouraging signs in our domestic casino play, as our non-baccarat table drop at our wholly-owned Strip properties increased 6% year-over-year."
  • "We are starting to see domestic customers again, starting to see their activity pick up."
  • "Looking at the room trends here in the first quarter, we anticipate the trends to be similar to what we saw in the fourth quarter, with room revenues up low single-digits and essentially flat REVPAR."
  • "While it is still early, ARIA is off to a good start in 2013, and we expect to continue to build traction throughout the year. Convention sales are pacing well, as room nights on the books for 2013 as of February 1 are 14% ahead of last year at this time....2014 is looking even stronger as we look forward. So there's still work to do in 2014, but its pace is actually even up higher than what we're experiencing here in 2013."
  • [MGM CHINA] "We're seeing early signs of success from our level 2 VIP gaming floor expansion, which opened in late September. We're also expecting to add another junket operator in the second quarter of 2013. The fourth quarter was our strongest volume quarter for the year for our own in-house VIP business. We expect to see continued growth in this business with the support from the MGM International marketing team."
  • [MGM CHINA] "This transition of mix has also driven an increase in our pre-branding-fee EBITDA margins by 60 basis points. We expect this positive trend of increasing main floor mix to continue, driven by upgrades to our main gaming floor product, marketing efforts, and of course the strong growth in the Macau mass market revenues."
  • "On the convention side, without the solid citywide convention base, what ends up happening is our lower-end properties Circus and Excalibur, they're the last to fill, and there's always a challenge there from a pricing perspective. With regards to Luxor, they're also usually a benefactor of Mandalay's overfill, and that hasn't quite happened as much as it used to happen in the past, but it's well-positioned to get that overfill coming up in the future here."
  • "We like the way our convention business is shaping up for the calendar year 2013, and obviously the leisure and transient business has been performing well for us. That's a big part of our business, so I think it's too premature right now to go out with full-year guidance. We like the way the calendar is shaping up, and we like the way the convention business is booked and the pace that we're on, and I think the best is to kind of leave it at that for now."
  • "I'd just reemphasize what's happening for us, in the second quarter, between when someone spends over $100 million on the corner of Tropicana and the Las Vegas Strip in Hakkasan to build a night club/lounge/bar, which right now has been a construction site and has been for the better part of nine months, is going to have a material impact on MGM Grand; having a Mayweather fight in May, material impact on MGM Grand; having a new Cirque show at Mandalay Bay, a material impact in the second quarter for Mandalay Bay; and the restaurants that we're adding there."


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