Third quarter results are out for Boyd Gaming and they could have been a good deal better. J.P. Morgan analyst Joseph Greff minced few words, headling his investor note “Revenue upside more than offset by higher costs.” Ouch. He ratcheted his price target on the stock all the way down to $72/share from $79 (it’s currently trading at $55). Third quarter cash flow of $321 million was just 1% below what Wall Street expected but the disappointment was palpable. Weaker results at the core casinos were largely mitigated by strong ones at tribal Sky River, near Sacramento, and by online operations, which include an invaluable alliance with FanDuel.
Las Vegas locals revenue was down 2%, regional winnings slightly up and unrated play (which comprises 40% of slot action) was down somewhat, too. Boyd cited a “challenging economic environment” as an explanation for “ongoing cost pressures.” These include labor, utilities and insurance. Greff largely spoke for us when he wrote, “This is a new disclosure and something most other U.S. regional operators will likely talk about during the remainder of 3Q23 earnings season.” Greff shaved a few percentage points off his future-looking cash-flow projections, lowering his 4Q23 forecast to $317 million. Part of that revaluation is due to the $25 million hit that Boyd expects to take from Durango Resort (below) opening in just a month’s time.
Locals play in Vegas generated $222 million for Boyd, augmented by $49.5 from the Downtown casinos. Despite being shorn of 20% of its slots and 33% of tables, Fremont Hotel recorded its best-ever third quarter. Main Street Station and the California Hotel, also construction disrupted, didn’t fare quite so outstandingly, despite “strong” business from Hawaii. Regional casinos chipped in $513 million, Sky River added $17 million in management fees and online play generated $90 million—way ahead of Wall Street consensus and an $11 million ROI. Boyd spent more on stock buybacks ($106 million) than on capex improvements ($100 million), for what that’s worth, and don’t forget the entire $100,000 it donated toward Maui relief. Don’t go broke being charitable, guys.
Speaking of charity, Deutsche Bank analyst Carlo Santarelli showed more of it, standing by his $73/share target and “Buy” rating on BYD. He argued, “We can surely make a big event out of the after hours trading and paint the picture of a quarter that wildly missed the mark, but, the bottom line is, results were essentially what we expected. The declines in the business from highs and unsustainable net revenue levels is also something we have expected, and frankly, we’ve been surprised by how long the top line growth lasted.” He lauded execs for managing expectations to the extent that, for him, 3Q23 turned out better than expected, although Santarelli is also lowering his forward-looking numbers.
Santarelli noted that Boyd was going up against a strong 3Q22, and that hotel and F&B revenues were up. He thought the $25 million Durango-impact estimate “overly conservative,” predicting the brunt of it would fall upon The Orleans and, to a lesser extent, Suncoast. Unfortunately, management’s reaction to a softening economy, should that manifest, would be to pull back on capex reinvestment, which seems like beating up the product at a time when it should be at its most alluring. For instance, scheduled room and restaurant refurbishments in Las Vegas might get put on hold.
Barry Jonas of Truist Securities struck a middle course, lowering his price target to $83 (from an awfully optimistic $85/share) but sticking with a “Buy.” Predicting that Boyd would be off today, he maintained that he like the company’s revenue diversity, low leverage, stock buybacks, 5% share of FanDuel and real estate ownership. He also thought Boyd leadership was lowballing the incoming Durango hit. We admire Boyd’s business model for almost all the reasons Jonas cited and it’s unfortunate that it’s going through a sticky patch.
That casino strike currently underway in Detroit is heating up rapidly. Both sides have already taken jabs at each other. Yesterday, hundreds of casino workers marched on City Hall, to speak with their elected representatives. You never see that in Las Vegas. It certainly ratchets the stakes up quite a bit. MGM Grand Detroit claimed to Global Gaming Business that it had offered the UAW the largest wake hike in the resort’s history. Workers aren’t having any of it. MotorCity bartender Paul Supanich told WXYZ-TV he hasn’t seen a pay raise since before the pandemic. “We feel like we deserve it. We worked with cigarettes for 20 years, Covid, so we’re expecting a raise and they promised it,” he complained. According to the station, the three casinos are losing an aggregate $3.4 million every day that the strike lasts. At that price, how long can they play hardball?
Elsewhere in Michigan, Internet casinos generated $166.5 million and sports betting brought in another $44 million. Unfortunately for OSB providers, 57% of that revenue went right back out in the form of promo giveaways, leaving them with $19 million. BetMGM led i-casinos with $48.5 million, followed closely by DraftKings‘ $43.5 million. FanDuel brought home $35 million and BetRivers $9.5 million. Caesars Entertainment conquered $7 million and nobody else was deemed worthy of mention. Sports betting winnings went largely to FanDuel ($17 million) but DraftKings came on strong, gaining 10% to finish with $12 million before promos. Also-rans were BetMGM ($8 million), Caesars Sportsbook ($3.5 million) and BetRivers ($2 million). Below the $1 million Mendoza Line were Barstool Sportsbook, PointsBet/Fanatics, WynnBet and sundry others.
A new Speaker of the House may be needed … and it’s not where you think. North Carolina‘s gavel-wielder, Rep. Tom Moore (R) is mulling a congressional bid. He’s had a district gift-wrapped for him in the Tarheel State’s current gerrymander. Ergo, Moore has embarked to the border with Mexico for some political posturing. Having already positioned himself as the man who thwarted casinos, Moore could be said to be on the Virtue-Signaling Tour.