Las Vegas Sands: an interesting June 2010 quarter

LVS 2Q2010 results

LVS reported 2Q2010 results after the close yesterday.  On a GAAP basis, the company was just slightly below breakeven vs. a loss of $.34 a share in the second quarter of last year.  Operating income was $166.8 million for the three months vs. a loss of $171.3 million in the comparable period of 2009.  Removing non-recurring items, net income was $129.3 million or $.17 per share vs. $8.8 million, $.01 per share, in the year-ago quarter.

The biggest reason for the improvement was the huge increase in income from the company’s casinos in Macau, where the overall market revenues in the first half grew strongly enough to eclipse the full-year 2007 results, with only about a 10% increase in the number of slot machines and table games.  LVS was also helped by the opening of its Singapore casino during the quarter.

my takeaways

I don’t have an investment opinion about LVS.  It’s a complex, highly financially leveraged company, with a lot of moving parts, and I haven’t studied it enough.  My thumbnail sketch:  LVS is a highly competent casino operator, with an emphasis on middle market and convention business.  The company overstretched itself in expanding aggressively–in Las Vegas, Macau, Singapore and Bethlehem, PA–going into the recent economic downturn and was hurt badly by that decision.  Conversely, although risky, it stands to be an outsized beneficiary of economic recovery, as it progressively gets its debt under better control.

Because of its geographical diversity, LVS can give good insight into global gaming trends.  That’s what I’m writing about today, based on the 2Q financials and the earnings conference call.

1.  The Singapore gaming business is off to a better start than expected.  The mass market is very strong, thanks in part to the efforts of LVS’s competitor in the market, Genting.  The highroller business is showing a greater geographical reach, and better credit experience, than LVS thought it would. The company is attracting gamblers from Malaysia, Indonesia, Vietnam and Thailand, as expected, but also from Hong Kong, China, Taiwan and Korea.  It’s still early days for this market, but so far, so good.

2.   In Macau, LVS’s high roller business was good and its stores sold a lot.  The mass market segment lagged, though.  Despite its two main casinos posting operating income up 155% and 44% year on year, LVS seems to think it should be doing even better.  Recently, LVS fired its Macau chief executive, Steve Jacobs.  Commenting on this in the conference call, LVS CEO Sheldon Adelson said he would “opt for him to go to a direct competitor.”  The company also said the Macau “problem” was not in the layer of staff below Mr. Jacobs.  The Hong Kong market reaction to the Sands China earnings was muted.  Despite opening up about 4%, 1928 closed down HK$.04.

3.  Convention business is beginning to revive in Las Vegas.   Demand from groups for convention/meeting space is strong.  The biggest issue is that there’s so much overcapacity in Las Vegas that rates remain depressed.  (LVS, WYNN and MGM all launched major expansions just as the downturn was beginning.  The last of these, MGM’s mammoth City Center, only opened late last year.)

WYNN reports tonight.  We already know from offering documents for a proposed bond refinancing that WYNN’s results in Las Vegas were weaker in the second quarter of this year than last.  Hotel occupancies were up but rates were down.  It will be interesting to compare the Macau results of WYNN with those of LVS< however.

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