Revenue growth at its Las Vegas casinos helped Red Rock Resorts post increases in third-quarter net income and revenue. Net income fell short of Wall Street forecasts, but revenue topped the projections.
Red Rock, the parent company of Station Casinos, said Wednesday its net income was $25.1 million, or 20 cents per share, for the three months ended Sept. 30, up 12.3 percent from net income of $22.3 million, or 16 cents per share, a year earlier. Analysts polled by Yahoo Finance, on average, had expected Red Rock Resorts to earn 24 cents per share in the most recent quarter.
Much of the interest from analysts focused on the Palms, which is undergoing an extensive renovation. The company said the second phase of the $690 million Palms renovation will finish by 2019’s second quarter and the third phase will finish by 2019’s third quarter. The company said has so far incurred $318 million in project costs.
Red Rock said Wednesday that higher materials costs and high demand in the Las Vegas market drove the makeover’s projected cost above the previously-reported $620 million.
“Though a higher renovation budget was largely anticipated based on conversations we had with investors throughout the quarter, we believe confirmation of the increase could negatively impact investor sentiment,” Stifel analyst Steven Wieczynski said in research note.
However, on the conference call with analysts, Red Rock CEO Frank Fertitta III said the Palms will be more than just a locals casino is being renovated to attract the Las Vegas tourist market, including more non-gaming features.
“We’ve been very successful of running hybrid properties, both at Red Rock (Resort) and Green Valley (Ranch Resort), which are very similar in size scope and scale to what the Palms is going to be,” Fertitta said. “The Palms will actually have more amenities and more horsepower.”
Fertitta said 60 percent to 80 percent of revenues from Red Rock Resort and Green Valley Ranch come from the locals customer. The Palms will be much different. The property will have several new restaurants from various well-known chefs, a new night club and pool club, and renovated convention and meeting space.
“I think anybody that goes through or walks through there as these things come together you can really see what it is,” Fertitta said of the Palms. “We’ve gotten a lot of positive feedback from everybody that visits the property.”
Red Rock Resorts reported the results after stock markets closed Wednesday. The company’s stock price fell before the close, dropping 25 cents, or 1.03 percent, to end regular trading at $24.08, and fell again in after-hours trading, dipping 5 percent.
Adjusted earnings before interest, taxes, depreciation and amortization, a cash flow measure, fell 7.9 percent to $109.1 million from $118.4 million, hurt by a drop in Native American casino management fees and construction disruptions at the under-renovation Palace Station and Palms. Sun Trust Robinson Humphrey had expected $115.7 million in EBITDA.
Red Rock Resorts’ quarterly revenue rose 1.6 percent to $412.3 million from $405.9 million. On average, Yahoo-polled analysts had expected $409 million in revenue.
Revenue for Red Rock Resorts’ Las Vegas operations, which include 17 hotel-casinos, rose 3 percent to $389.7 million from $375.1 million. Native American casino management fees fell 28 percent to $21.1 million from $29.5 million.
Red Rock Resorts Chief Financial Officer Steve Cootey said the quarter was the 21st in a row with an increase in same-store net revenue growth, which, he said, underscored the strength and resiliency of the Las Vegas locals market.
As he has in prior quarterly earnings announcements, Cootey touted Las Vegas’ strengths, including growing population, employment, wages and homeowner equity.
Red Rock Resorts said makeovers for Palace Station and the Palms remain on schedule. Work for the $191 million Palace Station project will finish by year’s end, the company said, adding that project costs have totaled $179 million so far.
Macquarie casino analyst Chad Beynon said in a research note Wednesday that he’s keeping his “neutral” rating on Red Rock Resorts’ stock.
“While valuation is becoming significantly more interesting at these levels … we remain neutral given our lack of conviction around Palms returns (given the capital expenditure increase),” he wrote. “Looking into 2019, however, we expect EBITDA to ramp as a completed Palace Station grows off a low base and Palms renovation headwinds begin to ease in (the second half) until the final phase is complete by year’s end 2019.”
Ahead of the earnings news, Red Rock’s Station Casinos had its application to exit NV Energy’s system OK’d by Nevada regulators. The Elko Daily Free Press reported that the Nevada Public Utilities Commission said Station must pay an $18.1 million fee payable over six years, or a $14.9 million up-front charge within 120 days to exit. The paper didn’t say where Station would get its energy if it exits.
The Review-Journal has said companies exiting NV Energy’s network, including Caesars Entertainment Corp., Wynn Resorts Ltd., and MGM Resorts International have agreed to pay more than $150 million in exit fees.
Ahead of the earnings call, Red Rock Resorts declared a fourth-quarter dividend of 10 cents per Class A common share payable Dec. 31, 2018, to shareholders of record Dec. 14.
Follow Matthew Crowley on Twitter @copyjockey
