MGM Resorts sees highest revenue growth in years
MGM Resorts sees highest revenue growth in years
08 NOVEMBER 2016 11:11 AM

MGM Resorts International reported a strong third quarter with record numbers, something executives attribute to the company’s profit-growth plan.

LAS VEGAS—Officials with MGM Resorts International were notably excited to share the details of a strong third quarter during the company’s earnings call.

MGM Resorts reported its revenue in the quarter increased 10% year over year, and adjusted property earnings before interest, taxes, depreciation and amortization increased 25% to more than $750 million. The domestic resorts revenue increased 8%, and cash flows increased 31% on a same-store basis.

“That was led here by continued strength in Las Vegas as well as the very productive hard work to grow our share, really, nationwide,” Chairman and CEO James Murren said.

This is the company’s sixth consecutive quarter of double-digit EBIDTA growth, Murren said, and it produced the best same-store net revenue and cash flows at its domestic resorts since 2007.

“How did we do this? Driving on our profit growth plan with pristine execution that was evidenced by our cash flow margins, which have consistently grown since we launched the plan,” he said.

The profit growth plan was designed to inspire new ways to look at the business, Murren said. It wasn’t going to be a quick fix, he said, and it wasn’t just another cost-cutting effort. The plan required months of careful planning at each property, and thoughtful coordination and messaging to ensure its success, he said.

Murren said the company is ahead of schedule to reach $400 million in annual adjusted EBITDA by the end of 2017. But, he said, that doesn’t mean there’s an end date for the program.

“We put in a tremendous amount of effort to get there, a really unprecedented level in our industry,” he said. “I think that’s important to bring out because it has resulted in a permanent cultural change in our organization of which we all are proud. We have changed this company literally at its very core.”

MGM Resorts’ stock value increased by 21.96% year to date as of press time. The Baird/STR Hotel Stock Index was down 1.23% for the same time period.

  • For further coverage of hotel companies’ third-quarter 2016 earnings calls, click here.

Looking ahead
Next year is shaping up nicely for Las Vegas properties, said Daniel D’Arrigo, EVP, CFO and treasurer. The company is sitting on about 90% of contracted room nights in convention group business already on the books, he said, and usually by this time of year the company would want 80% to 85% booked.

It’s too early to give specific guidance on 2017, he said, but based on what executives are seeing, projecting plus or minus mid-single-digit rate growth into next year would be consistent with past years in the Las Vegas market.

“So I would say it’s pretty much steady as she goes at this point, and 2017 is shaping up to look as good, if not better, than 2016,” D’Arrigo said.

Murren said he believes MGM Resorts’ revenue will grow next year, with room revenue and the addition of nongaming amenities continuing to drive overall revenue. The company is creating higher margin business, he said.

“By having the limited amount of supply we have with room rates that are still below pre-recession peaks and convention business that’s growing—and growing for us—that bodes well, I think, to margin growth going into 2017,” he said.

Chinese developments
The earnings call discussion turned to Chinese investment, with one analyst asking about MGM Cotai, a 1,500-room resort and casino in Macau, China.

Grant Bowie, CEO of MGM Resorts China Holdings, disagreed with the analyst’s premise that there are locational and infrastructure disadvantages to the development. He said that while there have been challenges, the company is excited for the opening in a “sweet spot” of Cotai.

“We understand that we need to be very focused on connectivity and transportation, and we’re working through all of those things,” he said. “As a result of that, we acknowledge that all the new operators coming to the market have ramped up a little slower than expected. And what’s critical for us is that when we launch our programs, we basically see our opening as only the start of our whole activity.”

The company is aware it needs to maintain the marketing and noise intensity in the marketplace to drive visitation, he said.

MGM Resorts is focusing on segments where it can drive traffic itself, Bowie said. The mass market is something the company has strength in, he said, and it’s looking at opportunities for other in-house VIP traffic. While it’s not likely to open the property with a junket, he said, the company is still in discussions with junket operators because it’s best to build momentum for the property and bring those participants into the business.

“So (we) focus on the things that we’re really good at, focus on the things we can control, drive foot traffic through the food and beverage operations, focusing both on the Macau market, Hong Kong, and then expanding that reach into China …,” Bowie said.

MGM Resorts China Holdings had a good third quarter, he said, and that comes after some “not-so-good quarters.” The company probably exceeded normalized hold by approximately $15 million, he said, which on an adjusted-margin basis would have brought it down to about 29%.

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