LV Sands overpromises, underdeliver; Court to Station: Unionize!

Shares of Las Vegas Sands traded down yesterday after the company missed its second-quarter estimates. Wall Street expected cash flow of $290.5 million and LVS delivered $244 million, a significant shortfall. (Mind you, Sands no longer reports earnings from Venelazzo.) Revenue overall was $1.17 billion, not the expected $1.37 billion. Sands execs blew sunshine up Wall Street’s keister, predicting better Macao business in the third and fourth quarters, albeit conceding that Singapore was harder to predict. Due to Marina Bay Sands-derived Coronavirus cases, the megaresort is closed from today through August 5. As for LVS’ new focus on i-gaming, the company is thinking small, planning to act as a supplier to other online companies and make minor purchases. Or, as President Patrick Dumont wisely put it, “I don’t think we’re going to buy our way into a business.”

Back on terra firma, CEO Rob Goldstein is still in denial about Texas after the company’s stunning rejection there, while continuing to ramp up ($17 million and counting) a ballot drive in Florida to permit new resort casinos. The company is concentrating on the gaming-averse northern part of the Sunshine State, going out of its way not to antagonize the powerful and well-heeled Seminole Tribe.

As for the Asian under-delivery, Credit Suisse analyst Ben Chaiken was sanguine, writing that “with market turmoil due to COVID and the fluctuating travel situation in China, we don’t think there was necessarily a bar that needed to be reached.” He found details on new initiatives to be “sparse,” with expansion politically stagnant and digital gaming “a work in progress.” On the plus side, should Covid-19 abate in China, he thinks Sands the best-positioned company to capture mass-market business, an increasingly important sector. Chaiken believes it could surpass pre-Covid levels by 2023. Macanese slot play was up 40% but table wagering was down 30% and hotel occupancy hovered around 70%.

Citing “laggard” results, JP Morgan analyst Joseph Greff moved his price target to $59/share from $66. He expected a soft quarter, due to travel restrictions (and got it). “Admittedly, it’s tough to be near-term bullish with an expectation of an immediate positive travel mobility catalyst,” he wrote, adding that the stock will reward patient investors. “With some COVID-19 flare ups in Guangdong, June took a step back step in Macau visitation (and gross gaming revenues), though July has rebounded and is pacing ahead of June. Nice to see, but it is not a huge inflection point. So it is really just a patience game waiting for both markets to allow for greater visitation,” Greff added, summarizing Sands’ predicament well. Given the lack of a travel bubble or movement on concession renewals, he concluded 2Q21 was “uneventful.”

Over at Deutsche Bank, analyst Carlo Santarelli was pleasantly surprised with Sands’ performance, evidently having had low expectations. He deemed travel restrictions “largely irrelevant in the bigger picture.” Instead he stressed higher vaccination rates within China. As for the much-bruited Internet shift, he also found Sands leadership to be vague, “seemingly leaving all options open.” Putting a very optimistic $73 price target on LVS, he continued, “we believe investors broadly remain confident in the eventual return to normalcy in both Macau and Singapore, and as such, given the difficulty in identifying the timing of the pivot in sentiment, we remain Buy rated.”

His belief in a recovery to 2019 levels was bolstered by management’s report of higher-than-ever sales to retail tenants, with occupancy at Marina Bay Sands reaching 68%. Contrary to most of his peers, Santarelli believes the proceeds from the Venelazzo sale windfall will be reinvested in Asia, with new markets a very low priority. However, management averred no interest in Japan (can’t blame them), hopes for a 2022 breakthrough in Florida but allowed that Texas was “a few years off.” In Macao, Sands is playing ball with the bosses in hopes of concession renewal, “focusing on aligning interests with the government by maintaining a stable work force, focusing on investment and reinvestment opportunities, and improving operating efficiencies.”

Sands continues to spend big on The Londoner ($400 million to go) and is $1 billion into its massive Marina Bay Sands expansion, a $3.3 billion project. Gross gaming revenue in Macao was $782 million, with mass-market win up 16% and VIP action flat. Compared to 2019, Sands still has a long way to go, with mass winnings down 61% and VIPs -69%. Credit issuance was at 39% of pre-Coronavirus levels. Basically, as China’s public health goes, so goes Sands.

In a win for the Culinary Union, it obtained its first-ever 10(j) bargaining order from the federal district court for Nevada, against longtime adversary Station Casinos, involving a 2019 union election at Red Rock Resort. The court ordered Station to begin good-faith negotiations with Culinary forthwith. Whether that happens … well, we won’t bet on it. Station is a lead-pipe cinch to appeal this as far as it can go. In spite of endless company verbiage that secret-ballot elections would be honored, it has become painfully clear that Station has little or no intent to negotiate in good faith at least not while CEO Frank Fertitta III has anything to say about it. Judge Gloria Navarro furthermore enjoined Station from browbeating employees about union activities, incentivizing them to oppose the Culinary in return for higher wages and so forth and so on.

Station reacted with extraordinary restraint, saying it “firmly and respectfully [disagrees] with the result, which overturns the clear vote of the Red Rock team members in their rejection of the Culinary Union. The decision punishes Red Rock team members and the Red Rock property because Station Casinos treated its team members too well.” Perhaps some internal discipline is in order, since Station was hoist on its own petard, in part, thanks to a text message to its COO that “they needed to announce the benefits as soon as possible because of the Union’s petition for election.” We’re all for Station increasing pay and benefits for its team members but when it happens on the eve of a union vote it’s all a little … convenient.

Ill-chosen Headline of the Day: “COVID-19 is Turning Vegas into a Family Vacation Hot Spot” (AMW PR)