Key Takeaways from MGM’s Q1 Earnings

by Trefis Team
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MGM Resorts (NYSE:MGM) released its first quarter results earlier this week with net revenues growing 13% year-on-year to $3.17 billion. MGM’s top line was driven by casino income and food & beverage sales, with its Regional Operations and MGM China segment reporting strong growth of 21% and 23%, respectively. Per Trefis estimates, MGM shares have a fair value of $33, which is roughly 20% ahead of the current market price.

You can view our interactive dashboard on How Has MGM Fared In Recent Quarters? to observe the quarterly revenue trends and modify yearly revenue and expense forecasts to gauge the impact on the stock price. Additionally, you can see more of our Consumer Discretionary Sector data here.

MGM Resorts operates 9 properties under Las Vegas Strip Resorts, 7 properties under Regional Operations, and 2 properties under MGM China. Las Vegas Resorts contribute roughly half of the net revenues with Regional Operations and MGM China together contributing the remaining half.

Las Vegas Strip Resorts

  • The net revenues of Las Vegas properties have remained almost flat for the last few years and the trend was evident this quarter too with net revenues remaining at $1.4 billion.
  • Casino revenues decreased by 17% over the prior year due to a 7% decline in table games drop and a 2% reduction in win percentage. The revenue declines were partially offset by a 2% increase in slots handle.
  • Room revenues increased by 5% over the prior year period, driven a 3.5% increase in the average daily rate. Average daily rates have been consistently increasing by around 3% annually for the last few quarters with a 90% occupancy rate, and we expect this trend to continue for full-year 2019.

Regional Operations

  • Net revenues increased by 25% over the prior year quarter, primarily due to the opening of MGM Springfield and the acquisition of Empire City Casino.
  • Casino revenues reported an increase of 23% over the prior year, driven by a 10% increase in table games drop and a 15% increase in slots handle.
  • We expect the upbeat performance by the Regional Operations to continue to drive the top line over the rest of the year – making up for an expected sluggish showing by Las Vegas Strip Resorts.

MGM China

  • Net revenues increased by 23% to $734 million, primarily because MGM Cotai, which opened last February, is now fully operational.
  • Mass market table games drop increased by 16% along with a 3% increase in win percentage. This led to an overall increase of 35% in mass market table games income.

Improving Operational Efficiency Through Centers of Excellence

To improve the operational efficiency and to lead the MGM2020 initiative, the company appointed Corey Sander (MGM’s previous CEO) as the new Chief Financial Officer. As a part of MGM2020, the company aims to change its existing operating model with a new one which enables centralized teams to take key strategic decisions as opposed to regional ones.  If implemented successfully, the proposed changes would enable consistency in quality, streamline operations and reduce overheads. The initiative targets a $200-million increase in EBITDA by 2020 through new labor standards, efficient procurement, and revenue optimization.

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