Penn National Gaming posts record revenue, earnings miss

TAGs: penn national gaming

penn-national-gaming-record-casino-revenueRegional casino operator Penn National Gaming (PNG) saw its shares tumble last week after failing to meet its own earnings guidance.

On Thursday, PNG delivered its Q4 earnings report, which showed revenue rising 3.5% to $769m in the three months ending December 31, 2017. The revenue figure represents a new company record but adjusted earnings came in at $183.3m, below the $196m earned in Q4 2016 and well below PNG’s guidance of $206m.

All three of PNG’s regional divisions were in positive revenue territory, although the dominant Northeast division was up only 1.5% to just under $384m. The Midwest division improved 3% to $222.2m, while the South/West division was up nearly 12% to $151.5m thanks to the addition of two new Mississippi casinos last March.

The South/West division includes the Hollywood Casino Jamul-San Diego, which is owned by the Jamul Tribe. PNG booked a $48.5m impairment charge for the quarter due to the tribe currently being in default on its loan obligations and what PNG called the “lack of progress to resolve this issue.”

For the year as a whole, PNG’s revenue gained 3.7% to $3.15b, while the adjusted earnings loss increased to $88.5m from $61m in 2016.

While analysts fretted over the missed earnings target, PNG CEO Timothy Wilmott celebrated the conclusion of “a successful and active year” for the company, capped off by the acquisition in December of 12 Pinnacle Entertainment gaming venues.

While costs associated with the Pinnacle deal contributed to the Q4 earnings decline, Wilmott said the acquisition will be “immediately accretive to free cash flow” once the deal closes sometime in H2 2018 and should boost annual revenue and earnings by “over 60%.”

Speaking to analysts after the earnings release, Wilmott said PNG would only commit to a permanent location and building budget for its new Category 4 casino in Pennsylvania “probably by late spring.” PNG first wants to see where the other Cat 4 licensees plan to build their venues.

Wilmott also referenced the expectation that the US Supreme Court will decide sometime this spring or summer to strike down the federal prohibition on sports betting.

Wilmott said PNG, which following the Pinnacle deal will operate in 20 US states, had been “approached by a number of different strategic partners” to capitalize on a new legal sports betting environment.

Wilmott clarified that PNG wasn’t looking at legal betting as a major revenue driver, except in “the indirect areas that sports betting brings in just due to increased visitation.” Wilmott reminded states considering betting legislation that sportsbooks are “a low margin business” and that, at least in terms of tax rates, legislators should “not think of [betting] as a traditional slot revenue or tables games revenue operation.”

Echoing this view, PNG President/COO Jay Snowden bemoaned the “irrational exuberance” re betting displayed by some state legislatures, including Pennsylvania, where last year’s gambling expansion legislation called for a “ridiculous” 36% tax rate on sports betting. Snowden pleaded with legislators to realize that betting was “not a cash cow” so “let’s not get greedy on this subject.”


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