MGM ticks up on Q1 earnings beat as Hornbuckle brushes aside tariff concerns
Echoing sentiments from its main rival a day earlier, MGM Resorts on Wednesday downplayed the impact of an unprecedented wave of US tariffs on the near-term viability of its operations.
Addressing Wall Street analysts for the first time since US President Donald Trump’s “Liberation Day” announcement, MGM CEO Bill Hornbuckle attempted to assuage concerns from the jarring global trade disruptions. Last month’s sweeping tariffs sent gaming stocks plunging as MGM Resorts fell 9% on 3 April, hours after Trump unveiled the plan.
MGM continued the freefall for the first half of the month until Trump telegraphed a pause on reciprocal tariffs against some Chinese goods. The policy shift caused a reversal of the major indices, enabling top gaming stocks to pare some of the losses.
As with archrival Caesars Entertainment, MGM went to great lengths to sell investors on Las Vegas remaining a hot destination in the face of a potential downturn. Airline capacity at Harry Reid Airport remains at high levels, with domestic flight volumes up 2% each month from April to June, Hornbuckle noted. MGM also delivered a record month in April based on hotel metrics at its Strip properties, he emphasised.
“We really think we’re in a good place,” said Hornbuckle on Wednesday evening’s call. “We do think Las Vegas is resilient, and it’s proven itself to be. And so, we like where we are, generally speaking.”
Earnings beat
On the back of strong performance at BetMGM, complemented by the stability of regional operations, MGM Resorts reported consolidated adjusted EBITDA of $637 million. Adjusted diluted earnings per share came in at $0.69, far above Wall Street expectations of $0.46. MGM Resorts generated revenue of $4.28 billion for the three-month period, slightly topping analysts’ forecast of $4.27 billion.
Revenue for MGM’s Chinese operations fell 2% to $1.03 billion, ahead of analysts’ estimates of $1.02 billion. MGM announced the quarterly results on the same day that reports surfaced of several rollbacks by China on US imports.
Overall, consolidated net revenues fell 2% for the three-month period ending 31 March, due mainly to a decrease of 3% among Las Vegas Strip resorts.
Tough comps from the 2024 Super Bowl
A sharp year-on-year reduction was anticipated after Las Vegas hosted the Super Bowl for the first time ever in the opening quarter of 2024. Chief Financial Officer Jonathan Halkyard noted that the Strip properties faced tough comps from the one-time revenue generated by the NFL’s hallmark event. The Super Bowl, alone, contributed additional revenue of approximately $65 million to MGM in February 2024.
That change notwithstanding, MGM Resorts reported record occupancy at Las Vegas Strip properties for the quarter. Casino revenue at the properties increased 8% to $538 million, with gains in table games win, slot handle and slot win.
MGM took a $37 million hit, meanwhile, from insurance proceeds related to a business interruption claim from a September 2023 cyber attack.
Titus: Trade War may place dent on tourism
US Rep. Dina Titus of Nevada recently cautioned in an opinion piece that tourism may become the “next casualty in Trump’s trade war”.
Despite Trump’s executive order to “strengthen America’s position as a top destination for sports and tourism”, visits to the US in March fell 9.7% compared with last year, according to data from the National Travel and Tourism Office. During the call, MGM reported that visitation from Canadian tourists has declined in recent weeks.
Given the macro backdrop, JMP Securities models EBITDAR to be flat or slightly down for the remainder of the year. Regarding tariffs, MGM has been focused on the near-term effects of sales and operational considerations, Halkyard indicated. Thus far, the impact has been quite small, he asserted.
The company also has contingencies for technology investments and consumables that may be subject to tariffs. Meanwhile, MGM has already made all of its slot machine purchases for the year. MGM also continues to manage labor expenses with its focus on digital integration, the company noted. Hornbuckle pointed to increased digital interactions through concierge and call centers.
On Monday, MGM shut down the concierge desks at several Strip properties, the Las Vegas Review Journal reported. During the first quarter, the company’s headcount for full-time employees in Las Vegas declined. The efforts could lead to $150 million in long-term cost savings.
A New York state of mind
Hornbuckle also provided an update on MGM’s plans in New York, where the company will submit a bid for a coveted downstate casino licence. MGM Resorts intends to submit an application by the New York Gaming Facility Location Board’s deadline of 27 June. The board is to announce the three successful bidders for licences by December.
MGM Resorts International and MGM Growth Properties completed the purchase of Empire City Casino and Yonkers Raceway in 2019 for $850 million. New York will impose an upfront licensing fee of $500 million each to the successful bidders.
Inclusive of the licence, MGM anticipates the project would cost approximately $2 billion, the company wrote in an SEC filing.
As it relates to tariffs, Hornbuckle indicated that the company will not build a high-rise in Yonkers. Consequently, the cost of steel, he mused, will be a “de minimis” amount.
Since the start of the bidding process, MGM has been one of the presumed frontrunners. Last week, Las Vegas Sands dropped a bombshell when the company announced it would abandon its bid in Nassau County, whittling the field for New York bidders to nine.
Beyond New York, MGM broke ground on a new property in Japan and continues development of a resort in Dubai. Hornbuckle missed last week’s Nevada Gaming Commission hearing to attend a groundbreaking ceremony for the casino in Osaka. MGM did not address the company’s $8.5 million fine imposed by the state, which settled charges associated with the company’s anti-money laundering deficiencies at two Las Vegas properties.
Stock buybacks
Stock buybacks also served as a main topic on the hour-long earnings call. During the first quarter, MGM Resorts repurchased 15 million shares for $494 million. To date, the company repurchased about eight million shares for $215 million in the second quarter.
MGM’s board authorised a $2 billion stock buyback plan in February 2023. Since the beginning of 2021, MGM has repurchased about 45% of its shares. The board authorised another buyback plan last month.
“We have seen a tremendous opportunity recently in repurchasing our own shares,” Halkyard said. “The situation with the trading in the stock has presented us with a fantastic opportunity to repurchase shares for the shareholders.”
In explaining his approach to buybacks, Halkyard said that MGM’s pace of repurchases would come down in each of the last six quarters. But when looking at the calculus, continued buybacks remained a compelling opportunity, he added. MGM has pledged nearly $3 billion for a 43.5% equity stake in the Osaka project. With expansion in Japan and the New York bid, Halkyard is not “adverse” to letting leverage tick up to fund the investments.
Encouraging signs at BetMGM
MGM Resorts held the call two days after BetMGM delivered a first-quarter business update. For the three-month period ended 31 March, BetMGM generated net revenue of $443 million, up 34% from the year-ago quarter.
BetMGM, a 50-50 joint venture between MGM Resorts and Entain, saw online sports betting revenue jump 68% for the period. BetMGM is targeting full-year profitability for the first time in the history of the venture.
Following Wednesday’s call, MGM’s stock jumped $1.30 or 4.13% in the after-hours session to $32.76 per share.
MGM is still down about 9% year-to-date, remaining near its lowest levels since 2022. The company traded below $9 a share at the height of the COVID-19 pandemic.