Mandalay stock pounded after New Year's announcement

Mandalay Resort Group's stock plunged 20 percent today after the Las Vegas company said it expects to report lower fourth-quarter earnings and blamed weak New Year's Eve business.

But Wall Street didn't buy the explanation and punished all big Las Vegas casino companies today due to concerns about more fundamental problems.

The announcement, released after the close of trading Wednesday, sent Mandalay stock reeling to $15.3125 a share, down $3.9375, in midday trading today.

Mirage Resorts stock, trading at $13.75 a share, was off nearly 4 percent; while Park Place Entertainment slipped to $11, down 37.5 cents; MGM Grand fell 43.75 cents to $45.625 and Harrah's Entertainment was down 53.125 cents to $22.625.

Securities analysts and Mandalay executives differed over the breadth of the problems causing the expected earnings shortfall and whether those issues were singular to Mandalay.

Some analysts, noting the company had insisted in the weeks leading up to the New Year that its earnings were on track, cut their ratings on Mandalay stock.

Mandalay President Glenn Schaeffer said results for the quarter ending Jan. 31 were hurt by a lack of visitors to Las Vegas during the holiday weekend, traditionally one of the strongest of the year for casino operators.

"The vital part of our quarter is the holiday period, and it was sub-normal," Schaeffer said. "We have about 30 percent of the room inventory on the Strip and we're principally a room-rate and slot-machine company."

He wouldn't disclose the occupancy rate for the company's big Mandalay Bay, Luxor, Excalibur and Circus Circus hotel-casinos on the Strip during the New Year's holiday, saying those numbers may be released when Mandalay reports its earnings after the quarter ends. But he indicated occupancy rates, room prices and slot drop fell below expectations.

"We have a lot of operating profit leverage in our properties," Schaeffer said, "so results can swing pretty substantially with changes in occupancy rates and room rates."

Mandalay's announcement said the company would report net income below the 16 cents a share it earned in last year's final quarter, but Schaeffer declined to estimate what the final number might be.

Nevertheless, the disclosure means Mandalay will earn at least 36 percent less for this year's final quarter than the 25 cent-a-share consensus estimate of securities analysts covering the company.

Furthermore, the year-over-year quarterly decline comes even though Mandalay Bay -- the 3,700-room megaresort that opened last March -- didn't contribute to the last fourth quarter's results.

"Customer volumes in the Las Vegas market as a whole fell below expectations as negative Year 2000 media reports discouraged the public's travel plans and caused a downturn in the company's combined performance of its Las Vegas resorts," the Mandalay announcement said.

"The company believes that the year-end travel jitters were an isolated event."

Schaeffer said the "negative ... media reports" referred to speculation about possible terrorist attacks in populated areas.

Asked if the higher-than-normal room prices resorts posted in anticipation of high visitor volume might have contributed to the problem, Schaeffer said, "I don't know. There could be a constellation of factors."

Bear Stearns & Co. gaming analyst Jason Ader cut his rating on Mandalay stock to "neutral" from "attractive."

"This announcement is a significant disappointment and comes as a surprise, given the fact we had a conference call with the company a few weeks prior to the New Year's weekend and management was specifically advising investors not to move earnings estimates downward," Ader said today.

Salomon Smith Barney analyst Michael Rietbrock cut his rating on Mandalay stock, saying the company's problems "may prove to be more than a one-quarter issue."

"There are more fundamental problems than the holiday weekend," he said. "Specifically, Mandalay Bay is having difficulty attracting high-end players.

"Though Mandalay Bay is an attractive property, its casino revenue has been softer than expected for a property of its stature," he said. "Because the company has never historically had gaming product that catered to the high end of the market, we believe that it will take some time to build an appropriate customer base for the property.

"The slot side of the business, which we consider to be a better indicator of overall gaming and visitor-volume trends, has also been softer than expected at the property.

"Unlike Mirage Resorts and MGM Grand, which can make up for soft visitor volume by hosting and presumably winning against high-end gaming customers, Mandalay Resorts' success ... is more contingent on the performance of the overall market," he said.

Reitbrock, who had trimmed his estimate of Mandalay's fourth-quarter earnings to 22 cents a share from 26 cents in early December, now expects the company to earn 14 cents a share.

Executives at MGM Grand and Park Place Entertainment have told analysts those companies expect to "make their numbers" for the fourth quarter despite the slow New Year's business in Las Vegas. Mirage, which is expected to announce its earnings later this month, may come in substantially above analysts' estimates because of some multi-million-dollar wins against high rollers.

"We did not experience soft business conditions during the holidays because of our widespread geographic diversification," said Harrah's Entertainment Senior Vice President Jan Jones. "We're not dependent on any single market."

Several factors have been blamed for contributing to the low visitor counts in Las Vegas over the holidays.

"Early efforts to extort prospective Las Vegas visitors with sky-high room prices backfired," said Las Vegas Investment Advisors Chairman Dave Ehlers.

"Most casinos were forced to slash prices as the new year approached. And even though many customers received lower prices when demanded, the whole situation created a public relations backlash that aggravated prospective visitors.

"In addition, lingering fears of Y2K problems -- particularly affecting air travel -- as well as wide reporting of potential terrorist attempts to enter the country and the fact many people just wanted to spend the night at home exacerbated the problem," Ehlers said.

"Until enough data about the early part of 2000 becomes available, the stocks of Las Vegas operating companies may be less than stellar performers."

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