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Boyd Gaming’s profit tumbles in second quarter

Updated Tuesday, Aug. 3, 2010 | 12:28 p.m.

Boyd Gaming Financial Information

  2Q 2010 2Q 2009 % Change 1Q 2010
Revenue $578.4 million $614.5 million -5.9% $415.1 million
Net income $3.4 million $12.8 million -73.4% $9.7 million
Net income per share 4 cents 15 cents -73.3% (10 cents)

Las Vegas-based Boyd Gaming, which operates three downtown Las Vegas properties and four locals resorts in Southern Nevada, said its earnings and revenue fell in the second quarter as customers spent less because of economic worries.

The company, which also has riverboat casinos in the South and Midwest and a 50 percent stake in Atlantic City’s Borgata property, had weaknesses in every sector, including New Jersey, which is seeing new competition in table game play from new Pennsylvania casinos and racinos.

Net income of $3.4 million, or 4 cents per share compared to net income of $12.8 million, or 15 cents per share, in the same period last year.

Net revenue of $578.4 million fell 5.9 percent.

Following today’s earnings announcement, Fitch Ratings downgraded Boyd Gaming’s Issuer Default Rating as well as its senior secured credit rating facility rating and its senior subordinated debt rating. The company’s rating outlook remains at “Negative.”

Boyd’s Issuer Default Rating fell to “B” from “B+” and Fitch officials said the continued negative outlook reflects the operating trend reversal in recent results and Fitch’s increasing concern regarding the refinancing of 2012 maturities, which includes a sizable credit facility and a small subordinated note.

In a conference call with investors today, Boyd executives said they continue to view Las Vegas as the core of its business and will continue to steer customers to the market from its other properties.

Boyd CEO Keith Smith said the company’s decision not to pursue Station Casino assets that are being auctioned in Bankruptcy Court later this week doesn’t represent a lack of confidence in the Las Vegas market. Boyd announced last week it would be pointless for the company to pursue any of the 11 Station properties because Station insiders would have an advantage in the bid process.

Boyd attempted to acquire several Station properties over the last 18 months.

The company said adjusted cash flow fell 16.2 percent at Boyd’s Las Vegas locals properties and revenue was down $13 million to $153.1 million from 2009’s second quarter in the locals segment. The company said while the decline was greater than in the first quarter, it was an improvement over the declines experienced throughout 2009.

The company’s downtown markets also were off from the second quarter of 2009 with revenue down $2.4 million to $55.2 million and adjusted cash flow off 21.2 percent.

In an interview today, Smith said the company’s downtown niche is continuing to hold up because consumers are seeking value and feel they can get it downtown. The company saw sequential quarterly improvement despite reduced visitor volumes and lower spending per visit.

While the locals and downtown markets are showing signs of improvement, the same can’t be said of the outlook for Boyd’s stalled Echelon project on the Strip.

Last October, the company said it thought Echelon could be delayed for three to five years. Smith said the outlook hasn’t changed.

He said the company continues to monitor key factors – visitor volume, spend per visitor, auto traffic volumes and airline traffic – regarding the future of Echelon.

But additional capacity on the Strip with the opening of CityCenter late last year, Cosmopolitan coming online at the end of this year and the status of the Fontainebleau unknown, Boyd isn’t changing its Echelon strategy.

Is Boyd positioning itself to take a greater stake with the Borgata in Atlantic City? Smith said for now, the ball is in MGM Resorts International’s court.

Boyd is in a joint-venture partnership with MGM on the ownership of the Borgata and has a first right of refusal for any deal on the horizon.

In March, MGM reported it was given 18 months to exit the market by New Jersey gaming regulators who did not approve the suitability of its associations with Pansy Ho, MGM’s business partner in Macau.

“We really don’t need to do anything until MGM presents us with something,” Smith said.

The agreement in place allows Boyd to match any offer it would get from a third party for a buyout of the Borgata. Smith said it’s also possible that a third party could acquire MGM’s investment and Boyd would become a partner of another operator.

In the conference call with investors, Smith praised New Jersey Gov. Chris Christie for the state’s efforts to improve Atlantic City in the face of greater competition from Pennsylvania.

Company officials also commented that it’s too early to determine whether the BP oil disaster in the Gulf of Mexico would have an effect on Boyd’s southern properties on the Gulf Coast and in Louisiana.

The company urged caution on efforts to curtail oil production and exploration in the gulf.

“If you put a moratorium on drilling and exploration, it impacts the economic engine of the region and the livelihoods of people in the area,” Smith said by phone. “The oil industry has been a tremendous source of jobs and throughout history has helped drive the economy there.”

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