PENN Q2 2014 EARNINGS PREP

Consensus estimates, management guidance and commentary, and questions for management in preparation for the earnings release/call tomorrow.

Q2 2014 CONSENSUS ESTIMATES

• Total revenues:  $649 million
• EBITDA: $77 million
• EPS $0.07

MANAGEMENT GUIDANCE

Q2 2014

• Revenues:  $640.5m
• EPS:  $0.06
• EBITDA:  $75.9m

FY 2014

• Revenues: $2.5138 bn
• EPS:  $0.12
• EBITDA:  $256.2m

QUESTIONS FOR MANAGEMENT

1. What's the latest on Sioux City? Shouldn't it be classified as discontinued operations?

2. July trends?

3. IL VGT competition is pressuring the brick-and-mortar casinos but should it ease as less and less new machines will be added later this year and in 2015?

4. Penn National (PA) had an awful quarter on gaming revenues. Is the PA market coming to maturity?

5. Any new initiatives on the Charlestown property ahead of Horseshoe Baltimore opening?

6. If slots at racetracks are approved by voters this fall in Nebraska, would PENN look to enter the Council Bluffs market?
7. Any more cost cutting left?
8. Thoughts on MA referendum and hurdles to getting Plainville open? 

FORWARD LOOKING COMMENTARY

Business conditions

• Consumer environment remains very challenged and fragile, similar to what PENN experienced the second half of 2013. Most notably, at the lower end work segments of the database below $100 where they continue to lose visitation and trips.
• Are actually seeing some nice trends at the $400-plus segment (VIP segment)
• Visits are down. Spend is largely either flat or, in many cases, up as you work up the database.  Newer markets are holding up fine, but some of the more mature markets are soft.
• About 50% of the lowered guidance is two properties in particular - Lawrenceburg and Charles Town.

New Developments

• Openings this fall of PENN's VLT racing operations in Dayton and Mahoning Valley, both in Ohio. They are right on schedule and on budget for early fall openings.
• Started construction on Plainville in March and expect to open this facility in 2Q 2015.
• Started construction with the Jamul Indian Village of PENN's development that is expected to open in the early part of 2016.

Corp expense

• The 20% reduction year-over-year is sustainable for the remainder of the year.

Margins

• Margins will hold at existing levels throughout the year

Maintenance capex guidance

• $80 million for FY 2014
  

IL VLT

• As recent as March of 2014, those video gaming terminals represented 27% of overall gaming revenue in the state and to the tune of $53 million in the month of March. So these are certainly acting as parasites on the bricks and mortar business in the state of Illinois and you will continue to see supply reduction consideration in markets like those and others where visitation trends continue to be a bit of a concern.

Tunica competition

• A lot of that Memphis business previously visited the Tunica market 8 years ago. 
• Arkansas clearly has taken a big bite out of the Tunica market