While Q4 consensus has come down, it may not be enough. The stock has fared poorly (down almost 30% since late November) so a miss is probably discounted to some extent.
PNK reports Q4 EPS tomorrow morning. In projecting an Adjusted EPS loss of $0.13, we are below the Street consensus at ($0.08). Our Adjusted EBITDA estimate of $37.1 million compares to the Street at $40.3 million. Louisiana, which has held up so well during most of this downturn, has been in a tailspin. Total EBITDA from the state could fall over 30% from last year. Recovery here is likely to take longer than the rest of the regional markets and will depress PNK’s profits for much of 2010. Remember that 60-70% of PNK’s property EBITDA is generated in Louisiana.
The following “Youtube” highlights management’s forward looking commentary from the Q3 earnings release and conference call.
“YOUTUBE” FROM Q3
Property specific
- “Residents from New Orleans have seen a significant increase in marketing from casinos along the Mississippi Gulf Coast, and that has in turn affected our business at Boomtown. The good news is that with October now largely complete, it appears that revenues have stabilized at Boomtown New Orleans. With revenues now stable, we'll use the remainder of the year to focus on bringing margins back up at the property.”
- I assume he meant stabile relative to 3Q trends because in the 4th quarter state reported gross gaming revenues for the property declined 13.4% vs. an 11.6% decline in Q3
- “In Reno, according to the monthly revenue statistics put out by the state, the entire Reno market continued to see declines in gaming revenues during the 2009 third quarter, caused by both additional Native American casinos in Northern California and general economic conditions. We were not immune to that trend. Based on recent trends, however, it does appear that gaming revenues are starting to stabilize for Boomtown Reno. We hope to get profitable over the next, let's say 12 months going forward and hopefully improve from there.”
- “I think the major single factor other than the economy that affected New Orleans was competition from the Mississippi Gulf Coast, which is not very far away. As they try to figure out how to keep their hotels built, since they weren't getting people from Florida or Atlanta anymore, they just reached out for people that are in our way.”
- “What did happen in Lake Charles was Delta Downs got very aggressive with their promotions earlier this year. They took some market share from us. We got more aggressive in the recent quarter and I think we've got our market share back,that hurt our margins a little bit. So we've had a little bit of a promotions battle going on between us Delta Downs, we're twice their size, more than twice their size. And I think we'll continue to show good results at L'Auberge as we have.”
- “If we never open River City, I think you continue to see strong growth with Lumière Place but obviously, River City will take a bite out of that. And we think between the two, we'll do at maturity, $120 million, $130 million a year EBITDA and maturity might be a couple of years away because of some disruption when we first opened.”
- L’Auberge margins: “I think it may take a couple of quarters for us to get the margins back up. We'll eventually get up there, I don't know if it will be the fourth quarter or not.”
- L’Auberge: “so October was at a pace of third quarter, but we're more optimistic on November and December.”
- Unfortunately, Nov & Dec gross gaming numbers were down 22% and 24% y-o-y, respectively
- “I think we're on a positive trend in New Orleans. I think we're just starting a positive trend now at L'Auberge.”
Development update
- “River City continues to move along on time and the same basis of budget that we previously outlined, the cash portion of that budget continues to be $357 million, of which we spent to date, $228 million approximately. And the timing of the project is expected to open in the spring of 2010 and we feel very good about the prospects of that property upon opening next year.”
- On December 14th, PNK announced that the opening would be accelerated to March 2010
- “Sugarcane Bay, we started driving piles earlier this month to put in the foundation for the project. The project that actually started last year when we started doing the road that expanded. The visibility of our property and access at L'Auberge and that would also be the road to Sugarcane Bay. With the project budget is the cash basis at $391 million, we expect to be on that pace and progress on that project as we move on through the fourth quarter and into next year.”
- On Nov 24th the project's budget was updated to “approximately $305 million, excluding capitalized interest, and includes approximately $54 million spent to date” and noted that completion is expected “ in late 2010 and open the hotel and related amenities in the first half of 2011”
- Baton Rouge: “We will start construction of that project promptly after the approval of the contracts, which we would expect will happen in May of next year.”
- On Nov 24th PNK announced that it “is proceeding with plans for its casino project in Baton Rouge, Louisiana, which represents an investment of approximately $260 million, excluding capitalized interest. As announced previously, the Baton Rouge project will include a new, single-level riverboat with an expansive casino; a 100-room hotel; an exciting mix of restaurants and lounges; and an entertainment venue.”
- “Regards to CapEx, we expect Sugarcane Bay next year to grow somewhere around $225 million in a cash basis, excluding cap interest. And go through the rest, Baton Rouge, that number is somewhere near $60 million and you have 40 or so maintenance CapEx across the portfolio.” I assume this will change with the revised budgets
- “We hope both Sugarcane Bay and Baton Rouge do about a 15% cash-on-cash return. That's 15% on the $400 million investment. And so that'd be an incremental $60 million of EBITDA above the 80 or 90 is doing now. The run rate I think is about 85, so...”
