February 21, 2008 / 3:08 PM / 12 years ago

UPDATE 3-MGM Mirage gets $1 bln gain, but oper profit falls

(Adds company comments, updates stock price)

By Deena Beasley

LOS ANGELES, Feb 21 (Reuters) - MGM Mirage Inc (MGM.N), the world’s No. 2 casino operator, posted lower quarterly operating earnings on Thursday as labor costs rose and a slower U.S. economy began to take its toll.

Net profit, however, more than quadrupled, driven by a one-time gain of $1 billion from an investment in the company’s Las Vegas CityCenter project by state-owned group Dubai World.

The quarterly results were “right in the middle” of what MGM had forecast when it warned earlier this month it expected lower earnings from continuing operations, said Bear Stearns analyst Joe Greff.

The company said on Feb. 7 that January earnings were down “a few cents” from a year earlier, but Chief Executive Terry Lanni declined to comment on whether that trend is expected to continue.

MGM, which operates resorts including the Bellagio, Mandalay Bay and Circus Circus in Las Vegas, had fourth-quarter net income of $872 million, or $2.85 per share, compared with $201.6 million, or 69 cents per share, a year earlier.

Excluding the CityCenter gain of $2.23 per share and other one-time items, earnings fell to 41 cents a share from 53 cents a year earlier. On that basis, Wall Street analysts had expected 44 cents a share, according to Reuters Estimates.

MGM attributed the lower operating profit to new labor contracts in Las Vegas and Detroit and higher costs related to continued capital investments.

Looking ahead, Chief Financial Officer Dan D’Arrigo said first-quarter 2008 hotel room revenue will drop from year-ago levels, but the company is working diligently to cut costs and drive occupancy so spending on gambling, food and shopping will hold up.

The CFO also said MGM’s Las Vegas gambling volume and winnings fell short of expectations during this month’s Chinese New Year holiday.

Fourth-quarter revenue rose more than 4 percent to $1.93 billion. Analysts had expected $1.90 billion.

Overall gaming revenue rose 2 percent, while Las Vegas slot machine revenue rose 3 percent.

MGM said property earnings before interest, taxes, depreciation and amortization fell 1 percent on a comparable basis from a year earlier.

The results “suggested that the rate of growth is slowing, particularly for the legacy Mandalay properties (mostly mid- to low-tier), which had been experiencing higher growth since coming under the MGM umbrella,” Morgan Stanley analyst Celeste Brown said in a research note, referring to casino-hotels acquired by MGM in its 2005 buyout of Mandalay Resort Group.

MGM’s high-end gambling returns were stronger, with Las Vegas baccarat volumes up 15 percent in the quarter.

MGM is developing a number of casinos, including the massive CityCenter project in Las Vegas and a $5 billion casino in Atlantic City, New Jersey. Last year it opened the MGM Grand Detroit and its first property in Macau, China’s gambling haven.

In August, MGM agreed to sell half of the CityCenter development of hotels, condos and retail outlets to Dubai World, which also plans to acquire a stake of up to 20 percent in MGM itself.

MGM shares, which have fallen 35 percent since last October, were up $1.39, or 2.2 percent, at $65.98 in afternoon trading on the New York Stock Exchange. (Additional reporting by Christopher Kaufman and Nick Carey, editing by John Wallace/Andre Grenon)

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