MGM Mirage shares fall after earnings announcement

Shares of MGM Mirage were off some 6 percent this morning on the New York Stock Exchange after the company told investors Wednesday it expected to report a $96.7 million loss in the first quarter. The casino operator also said it would report a $255 million operating loss at CityCenter.

Wall Street wasn’t surprised. Many analysts had predicted the company would have a challenging first three months of 2010 as the Strip tries to recover from the recession.

“MGM Mirage's preliminary results support our view that the Las Vegas market should remain pressured due to the inflow of supply from the recently opened CityCenter,” Oppenheimer gaming analyst David Katz told investors this morning. “While initial results for Aria were modestly positive, they were below expectations, as were results from some of the wholly owned Strip properties.”

Aria, CityCenter’s centerpiece 4,004-room hotel-casino, is expected to report an operating loss of $66 million. MGM Mirage said CityCenter would take a $171 million noncash impairment charge related to the development’s 2,400 residential units.

Stifel Nicolaus gaming analyst Steven Wieczynski said investors were probably disappointed by the preliminary quarterly results. Las Vegas gaming revenues grew 33 percent in February, which helped drive up the company’s stock price.

“After strong Las Vegas February results were released, we believe expectations for a quicker recovery were starting to get baked into MGM shares,” Wieczynski said. “MGM Mirage’s preliminary results suggest March trends did not improve and February was an anomaly. Investors looking for a quick recovery in Las Vegas have to realize a large chunk of supply still needs to be absorbed which will likely weigh on room rates.”

Janney Montgomery Scott gaming analyst Brian McGill said that although the Strip might be a drag on the company’s results, strong numbers coming from MGM Mirage’s casinos in Detroit and Biloxi, Miss., could buoy results.

“The Las Vegas Strip results were well below our low expectations for the quarter,” McGill said. “The surprise to us came at the higher-end properties, which saw a drastic drop from year ago levels. The negative leverage in the model continues to manifest itself, as the properties cannot cut enough costs to match the lower level of revenues.”