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Las Vegas Sands (LVS) Misses Estimates Due to Sluggish Asian Growth

By: , dated July 27th, 2012

Casino giant Las Vegas Sands (LVS: Charts, News) disappointed investors on Wednesday, after the company reported second quarter earnings of 29 cents per share, or $240.6 million, on revenue of $2.58 billion. This was a 35% decrease in profit and a 10% gain in revenue from the prior year quarter. Las Vegas Sands broadly missed on both the top and bottom lines. Analysts had been expecting an average of 60 cents per share on revenue of $2.78 million. The company attributed its weak earnings, which broke a streak of four consecutive quarters of profit growth, to lower revenue in Macau, Singapore and Las Vegas, which was worsened by higher legal expenses. Las Vegas Sands’ poor earnings were expected, after its primary rival Wynn Resorts (WYNN: Charts, News) also missed on the top and bottom lines due to similar reasons.

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Meanwhile, its Hong Kong-listed subsidiary Sands China posted a 40% decline in earnings due to increased opening expenses at its new Cotai Central location, as well as a $100.8 million impairment charge on two land parcels in Macau. CEO Sheldon Adelson remained upbeat despite the weak numbers. “While our quarterly results did not meet my expectations,” he stated, “our financial results reflected solid revenue growth overall and significant cash flow in both Macau and Singapore, as well as the continued steady execution of our Cotai Strip development plan in Macau.”

Las Vegas Sands, which relies on its Asian properties for 82% of its revenue, posted EBITDA of $429 million from its four Macau properties, a 9.6% increase from the previous year. For the full year, Macau’s casino industry growth is forecast to stay under 10%, a sobering slowdown from the feverish growth of 58% and 42% it experienced in 2010 and 2011, respectively. The company blamed sluggish economic growth in China and a July typhoon, which disrupted ferry services between Hong Kong and Macau, for the weaker growth. However, Adelson believes that “one quarter does not a trend make,” and that the slowdown in Macau’s gambling industry will be temporary.

The company’s flagship Venetian Macau posted a 24.6% decrease in operating income, due to a 16.5% decline in game and hotel room revenue. Net revenues slid 11.7%. It also noted an “abnormally high” win rate at its table games at 4.36%. Last quarter, the win rate at its table games was 2.68%. At its smaller Four Seasons Hotel Macau and Plaza Casino, net revenue soared 120%, but revenue at its oldest property, the Sands Macau, slid 18%.

In Singapore, the Marina Bay Sands, posted an 18.5% decrease in EBITDA to $330.4 million, due to lower game volume and a lower house win rate. Net revenue slid 5.8%. However, hotel occupancy gained 8.3 points to 99.1%.

In Las Vegas, revenue declined by 5.2% and operating income fell 15.5%. Game and hotel revenue also declined, as did the company’s win rate at its tables. The company attributes 18% of its revenue to its U.S. properties in Las Vegas and Bethlehem, Pennsylvania. Its Bethlehem property posted an 18.5% improvement in revenue.

Shares of Las Vegas Sands now trade at 12.2 times forward earnings, with a 5-year PEG ratio of 0.65, and pay a quarterly dividend of 25 cents per share – a 2.6% yield at current prices. The stock is fundamentally cheaper than its primary competitor, Wynn, which trades at 14.7 times forward earnings with a 5-year PEG ratio of 1.3. Despite promising long-term growth, both Las Vegas Sands and Wynn face severe macro headwinds that will hold it back in the short term. Concerns about China’s slowdown, which is being worsened by the European crisis, as well as sluggish American jobs growth will all throttle the growth of casinos throughout the rest of 2012.

Other News About LVS
Las Vegas Sands Profit Slumps 35%; Stock Plunges.
Las Vegas Sands earnings crash on weak asian numbers.
Las Vegas Sands Management Discusses Q2 2012 Results.
Adelson sticks to his guns on long-term Asian growth.

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Leo Sun Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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