Wynn Resorts Q3 results missed analysts’ estimates

TAGs: Las Vegas, Leonard Postrado, Wynn Resorts

Las Vegas-based casino operator Wynn Resorts Ltd. total revenue rose 11 percent in the third quarter of 2016 but the data isn’t enough cause for celebration.

Wynn Resorts Q3 results missed analysts’ estimatesNet revenues were $1.11 billion for the third quarter of 2016, an increase of 11.4%, or $113.5 million, from $996.3 million for the same period of 2015, Wynn Resorts said in a regulatory filing.

The increase, according to the casino operator, was the result of $164.6 million from Wynn Palace and an increase of $15.9 million from our Las Vegas Operations. Wynn Resorts’ total adjusted earnings before interest, taxes depreciation and amortization rose by 9.1 percent to US$305.4 million for the third quarter from $279.9 million for the same period of 2015.

But the latest data missed analysts’ estimates, which projected the casino operator’s third quarter revenues to be around $1.12 billion. Even the Macau unit of Wynn Resorts, the casino company founded by billionaire Steve Wynn, posted third-quarter profit that missed analysts’ estimates.

The dismal third quarter sent Wynn Resorts shares plunging by as much as 6.2 percent in late trading to $90.50.

Dampening the revenue of Wynn Resorts was the lackluster performance of Wynn Macau, which swung to a third-quarter loss as a result of the opening of its latest casino, Wynn Palace.

Net revenues from Wynn Macau were $518.1 million for the third quarter of 2016, an 11.5% decrease from $585.1 million for the same period of 2015. Adjusted Property EBITDA from Wynn Macau was $151.0 million for the third quarter of 2016, a 7.3% decrease from $162.8 million for the same period of 2015.

On the other hand, Casino revenues from Wynn Palace were $146.7 million for the third quarter of 2016. In VIP operations, table games turnover was $4.15 billion and table games win as a percentage of turnover (calculated before commissions) was 2.90%, within the expected range of 2.7% to 3.0%.

In mass market operations, table drop was $275.9 million, table games win was $51.5 million and table games win percentage was 18.7%. Slot machine handle was $204.5 million and slot machine win was $12.6 million for the third quarter of 2016.

DS Kim, an analyst from the foreign brokerage JP Morgan Chase, pointed out in a note on Thursday that casino cannibalization is starting to take shape with Wynn Macau becoming the prey. As a result, Kim said “initial knee-jerk reaction will be negative.”

Reacting on the cannibalization aspect, Wynn Macau Ltd. president Ian Coughlan said they have already perceived the scenario to happen.

“There’s been a fairly significant impact on our direct VIP downtown because we have a lot of Wynn players that wanted to come and experience the new property.” Mr Coughlan said. “The junkets have managed to backfill downtown [Wynn Macau] very effectively. On the mass, we’re less affected. Our customers downtown seem to be very ‘peninsular-downtown’ centric. While some of them have experienced our new property they’ve been very sticky downtown.”

Meanwhile, Wynn Resorts president Matt Maddox reported that the ramp up of Wynn Palace “is taking a little longer” than anticipated. He, however, assured investors that the company is maintaining their market share in Macau.

He also confirmed that the total Wynn Palace investment rose to US$4.4 billion, reflecting a US$300 million increase to the guaranteed maximum price payable to Leighton Contractors (Asia) Ltd.

It would be recalled that Wynn agreed to shell out US$121 million in fees to pay Leighton Contractors (Asia) while associated companies of the casino operator are expected to pay US$200 million to the construction firm.

The amount was broken down into the following: nearly US$21.1 million for work completed and accounted for under the previously arranged maximum guaranteed price for the resort; US$55.2 million that prior to the date of Sunday’s announcement had been withheld under Cotai construction agreement, and up to US$45 million “as and when outstanding, defective, or non-conforming work is completed to the satisfaction of the group.”

“But when we look at what’s going in Macau, comparing September at Wynn Palace – which was our first full month [of operation] – and October, that we just completed, we’ve seen in our volume metrics that turnover, mass drop and slot handle … increased sequentially … by about 20 percent, which was in line with the market,” Maddox said. “We are looking at rationalising some of those expenses but I wouldn’t expect a very large decline from that level. In particular, as sales ramp up and in the retail outlets and everywhere else you’ll start to see the variable costs ramp up. So I think that those numbers will likely be in line.”


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