PENN 3Q09 QUICK REVIEW

Penn missed the quarter and lowered guidance.

 

 

Penn missed the quarter reporting $144MM of EBITDA and adjusted EPS of $0.33 vs guidance of $162MM of EBITDA and EPS of $0.35 and consensus estimates of $160MM and $0.34, respectively.  Penn's new 4Q09 guidance for EBITDA is 10% below consensus and 13.5% lower than their previous guidance.

 

PENN 3Q09 QUICK REVIEW - penn guidance q4

 

 

“The challenging economic environment, which has resulted in lower consumer spending at gaming facilities, continued to impact operating results for both the overall industry and Penn National in the third quarter, particularly during the month of August. Penn National’s reported third quarter results were below guidance as, in addition to the challenging economy, we incurred charges for several items that were excluded from the guidance provided at the time we reported second quarter results, including lobbying costs and an $800,000 charge for design and development costs related to the proposed addition of a hotel -- which has since been cancelled -- which impacted results at Black Gold Casino at Zia Park.” 

 

Compared to Penn's original guidance for $162MM of EBITDA, $12.3MM of the miss was related to Ohio lobbying expense and write-offs of construction in progress at Zia Park and Penn Kansas, attributabing $5.5MM of the miss to weaker fundamentals.  According to our numbers, property EBITDA fell 3% short of our $177MM estimate.  Please see the breakout in the table below:

 

PENN 3Q09 QUICK REVIEW - Penn 3Q

 

As we noted in our preview yesterday, we don't think that the Penn story hinges on this quarter, but rather on PENN's deployment of their dry powder and the duration and subsquent recovery from this downturn.  Penn provided an update on its greenfield and acquisition opportunities in its release:

  • Fontainebleau speculation was confirmed:
    • "We have expended significant effort with outside legal, construction and financial consultants to analyze the potential opportunity for the bankrupt Fontainebleau project in Las Vegas. We recognize that the issues in Las Vegas are extremely challenging, and are focused on attempting to develop a creative and strategic solution that would include bringing in an equity partner. While we have received numerous inquiries from potential investors, we are primarily interested in partnering with entities that can bring strategic value in addition to economic contributions. We are currently in discussions with a partner that we believe meets this criteria, and have advanced a proposal to the debtors and several key creditor constituencies to provide a ‘debtor in possession’ loan and serve as the stalking horse in an auction of the project. Because the numerous creditors have not unanimously endorsed our proposal, it is uncertain whether our proposal will be accepted or whether we will be the successful bidder at an auction. We will provide additional disclosure on this matter if and when definitive agreements are in place."
  • Maryland: Penn's proposal for a $97.5MM casino with 1,500 slots in Cecil County is expected to be voted on today. If selected Penn will close its land purchase and commence construction shortly thereafter with a planned opening in late 2010
  • Kansas: Penn's 50/50 JV with Speedway International is awaiting approval from the Kansas Lottery Gaming Review Board which is expected later this year
  • Ohio: The Supreme Court of Ohio ruled that in installation of VLT's at racetracks is subject to voter referendum, which Penn is waiting on. Issue 3, a proposal to amend the state Constitution to allow for four casino's in Ohio's largest four cities, is being going to a vote in November. Penn has proposed constructing and operating two facilities in Toledo and Columbus
  • New York: No timing update on an award for Acqueduct