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NEW YORK (Reuters) - Station Casinos Inc. (STN.N: Quote, Profile, Research), which caters to Las Vegas residents, on Tuesday posted a lower-than-expected quarterly profit and cut its yearly earnings outlook based on higher interest expense, sending its stock down as much as 8 percent to a new low for the year.
The company's growth has paralleled that of Las Vegas, one of the fastest-growing U.S. cities. But new casino projects by Station and its competitors, including Boyd Gaming Corp. (BYD.N: Quote, Profile, Research), coupled with fears of waning consumer confidence, have raised questions about whether local gambling demand can absorb the additional capacity.
Station's net income for the second quarter fell 34 percent to $26.8 million, or 44 cents per share, from $40.6 million, or 58 cents per share, a year earlier, as costs of new development offset gains in revenue.
Excluding one-time items and development expense, Station posted a profit of 61 cents a share, missing the average analysts' estimate of 64 cents a share, as compiled by Reuters Estimates.
"The second-quarter results wouldn't suggest that the locals market is falling off a cliff. People had expected some deceleration," said Joe Greff, an analyst at Bear Stearns.
He cited the April opening of Station's Red Rock resort in the Las Vegas suburb of Summerlin and Boyd's South Coast Hotel and Casino, which opened south of the Las Vegas Strip last December, as contributors to slower growth at older casinos catering to locals.
Station's revenue rose 25 percent to about $341.8 million, while net revenue at its major Las Vegas operations, excluding Green Valley Ranch, rose 28 percent.
Station lowered its earnings per share outlook for 2006 and 2007, but reiterated its forecast for earnings before interest, taxes, depreciation and amortization.
Analysts said Station's results indicated that the locals' market in Las Vegas was still holding.
The lower earnings outlook could be due to higher interest expense, as the company more aggressively buys back shares, Calyon Securities' analyst Smedes Rose said.
Station said its board had authorized the repurchase of up to an additional 10 million shares, after the company completed an earlier program, spending $737 million on buybacks in 2006 to date. The company also increased its dividend by 15 percent to 28.75 cents per share.
Greff said the company likely believes that the shares are a good buy in the long term, but the short-term impact of the buyback is to raise costs and depress earnings per share.
Looking ahead, Station lowered its third-quarter earnings per share outlook, excluding development expense and other nonrecurring items, to between 49 and 54 cents from its earlier forecast of 53 to 59 cents.
The company also lowered its forecast for fourth-quarter earnings per share to between 59 and 64 cents, from a previous range of 66 to 71 cents.
For 2007, the company said it expects to make $2.53 per share to $2.95 per share, compared with its previous forecast of $2.65 per share to $3.05 per share.
Station also announced the start of an expansion of Red Rock that is expected to cost between $60 million and $65 million.
In late morning dealings, Station's shares were down $2.91, or 4.8 percent, to $56.99 on the New York Stock Exchange after falling as low as $55.10 earlier.
The stock has fallen about 16 percent year-to-date, compared with a gain of around 12 percent for the Dow Jones U.S. Gambling Index |
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