Penn National Gaming offered some clarity to its multiple acquisitions and growth potential during its second quarter earnings announcement Thursday.
The regional casino giant said it remains on track to complete its $2.8 billion purchase of rival Pinnacle Entertainment. Penn National CEO Tim Wilmott also said, in both prepared remarks and on a conference call with analysts, that the company is looking beyond that transaction and other pending acquisitions.
The buyout of Pinnacle has been approved by eight state gaming regulatory bodies and shareholders of both companies. However, the Federal Trade Commission in March issued a second request for information under the Hart-Scott-Rodino Act over potential anti-trust matters.
Wilmott said he expects the deal to close in before the end of the year and that Penn and Pinnacle’s leadership have carried on talks about how to add the 12 casinos into Penn’s current structure.
“We have developed a new corporate organizational structure that blends proven leaders from both Penn National and Pinnacle,” Wilmott said in a statement. He said Penn’s corporate headquarters will remain in Wyomissing, Pa., but the company will retain a corporate presence at Pinnacle’s Las Vegas-based Service Center.
Wilmott said the merger will lead to $100 million in cost savings for the new company over two years.
Meanwhile, Penn National hasn’t stopped seeking expansion opportunities. The company is acquiring Margaritaville Resort Casino in Bossier City, La., for $376 million in a joint agreement with real estate investment trust VICI Properties. Penn National has also won the rights to build two “satellite casinos” in Pennsylvania that will have 750 slot machines and 30 table games.
“Even as we’ve structured the Pinnacle transaction with the cash and currency consideration, we’re going to have a balance sheet that’s going to give us the opportunity to continue to do these type of tuck-in acquisitions,” Wilmott said on the conference call. “And we’ll continue to be very opportunistic.”
Wilmott said Penn National views the nationwide expansion of legal sports wagering as another revenue growth opportunity. Completion of the Pinnacle transaction will make Penn the largest U.S. regional gaming operator, with 41 properties in 20 jurisdictions.
“We anticipate accepting wagers on sporting events at our casinos in Mississippi, West Virginia, and, potentially, Pennsylvania, prior to the start of the National Football League’s season,” Wilmott said in a statement. “We are continuing to engage with state lawmakers in our other jurisdictions to advocate for passage of sports betting laws with reasonable tax rates and license fees.”
In the quarter that ended June 30, Penn National said overall revenues grew 3.8 percent to $826.9 million. The company’s best region by percentage growth was its south and west properties, which includes casinos in Mississippi and Nevada. Revenue from that market grew 6.7 percent in the quarter.
Penn’s Northeast region, including casinos in Pennsylvania, Ohio and Massachusetts, accounted for more than half the overall revenue total – $423 million – up 4.4 percent over the same quarter in 2017.
“Our solid second quarter results are largely attributable to same store revenue growth at nearly two-thirds of our gaming operations,” Wilmott said in a statement.
Overall, Penn National’s net income of $53.9 million more than tripled the same figure from the 2017 second quarter, which translated into earnings per share of 57 cents.
“Across the regions, the results were generally better than our forecast,” Jefferies gaming analyst David Katz told investors. He added that the company’s acquisitions, satellite casinos in Pennsylvania, and sports betting opportunities “should continue to push estimates and the shares higher.”
Penn’s adjusted cash flow was up 8.7 percent, to $247.1 million. However, after paying out lease payments of $115.9 million to Gaming and Leisure Partners, the real estate investment trust that owns a bulk of Penn’s casinos, cash flow grew 15.7 percent.
“We believe the results should be well received,” said Deutsche Bank gaming analyst Carlo Santarelli. “Penn, as well as its peers, have been articulating for some time that the industry is changing, as operators run the businesses for cash flow.”
The company announced earnings before the markets opened Thursday. Shares of Penn closed at $32.50 on the Nasdaq, down $1.66 or 4.86 percent.
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
