UPDATE 3-MGM Resorts' Q3 fails to inspire, shares slide

Thu Nov 3, 2011 1:55pm EDT

* Results in line, fail to inspire

* October presages strong Q4

* Shares fall nearly 6 percent

By Abhishek Takle and Edwin Chan

Nov 3 (Reuters) - MGM Resorts International narrowed its losses, but failed to live up to heightened expectations as gambling and spending on the Las Vegas Strip recovered, sending its shares down nearly 6 percent.

The operator of the Bellagio, CityCenter and MGM Grand reported a smaller third-quarter loss and a slight revenue beat. But rival Las Vegas Sands Corp comfortably surpassed Wall Street's expectations last week.

MGM Resorts, which has a much smaller footprint in booming Asian markets such as Macau than Las Vegas Sands and Wynn Resorts Ltd , has benefited from a slow, but fitful recovery in Vegas gaming and leisure revenues.

CEO Jim Murren told analysts he was confident of a banner fourth quarter and 2012, building on "a record profit month" in October and strong convention-hotel trends in Vegas, which is rising slowly out of years of recession.

But some analysts say concern persists about margin pressure in Macau, as it spends to compete with larger rivals Sands and Wynn, as well as aggressive local player Galaxy Entertainment Corp Ltd , which opened a $2 billion casino in May. MGM's higher reliance on a lower-margin VIP segment there will also weigh.

"The results are definitely improving in Las Vegas and regionally," said Sanford Bernstein analyst Janet Brashear. "The concern ... is around Macau."

On a pro forma basis, MGM posted a 66 percent jump in adjusted profit before interest, taxes, depreciation and amortization of $139.2 million in the quarter, after including an $11 million branding fee expense to a venture run with partner Pansy Ho.

The company's shares fell to $10.73 in afternoon trading on the New York Stock Exchange.

BATTLING IN MACAU

To expand its footprint and safeguard its share of the booming gaming market in the former Portuguese enclave -- the only city in China where gambling is allowed -- MGM Resorts is poised to begin construction of a multibillion-dollar new resort this year on Macau's Cotai strip.

"We would be completely comfortable in saying we're prepared to open in early 2014, if not sooner," Murren told Reuters. It could cost around $1.5 billion to $2.5 billion, based on the outlay for Galaxy's new casino.

The biggest hotel-casino operator on the Strip reported a 42 percent jump in consolidated net revenue to $2.23 billion, barely squeezing past the $2.22 billion expected.

It posted a loss of 25 cents a share, narrower than last year's loss of 72 cents a share. Excluding items, the company reported a loss of 14 cents a share, in line with analysts' expectations, according to Thomson Reuters I/B/E/S.

For the current quarter, MGM Resorts is projecting a 10 percent increase in its closely watched revPAR, a key industry metric calculated by multiplying average daily room rate by occupancy rate.

It did not give further forecasts.

"We're off to a good start in Q4," Murren said. "The underpinnings of the consumer economy remain strong."

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