Why Penn National Gaming investors can bet on 3Q14 results

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Part 2
Why Penn National Gaming investors can bet on 3Q14 results PART 2 OF 13

Why Penn National Gaming’s 3Q14 revenues beat guidance

Third-quarter results

On October 23, 2014, Penn National Gaming, Inc. (PENN) reported unaudited, consolidated earnings results for the third quarter and nine months ended September 30, 2014.

Why Penn National Gaming’s 3Q14 revenues beat guidance

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Three-month comparison

The above chart shows that PENN reported net revenues of $646 million, down 9.6% year-over-year, but 2% above its guidance of $633 million. Adjusted earnings before interest, taxes, depreciation, and amortization (or EBITDA) were $66 million versus $185 million a year ago. Adjusted EBITDA was negatively impacted by rental expenses related to a master lease that was signed when the company spun off certain real property assets. Meanwhile, adjusted EBITDA is 8.8% above guidance. Adjusted EBITDA before rental lease expense (or EBITDAR) was $170 million—down 7.9% year-over-year, but 3.6% above guidance.

Nine-month comparison

For the nine months, PENN reported net revenues of $1,939 million—down 14.7% year-over-year. Adjusted EBITDAR was $535 million—down 14.2% year-over-year. Adjusted EBITDA was $221 million compared to $623 million a year ago due to the impact of rental expense related to its master lease. We’ll look at this later in this series. Like the adjusted EBITDA, net income dropped drastically to $17 million from $94 million a year ago.

Earnings guidance for 4Q and FY 2014

The company provided earnings guidance for the fourth quarter ended December 31, 2014. PENN expects net revenues of $621.1 million, adjusted EBITDAR of $162.4 million, and adjusted EBITDA of $55.7 million. The company expects net loss to be $6.1 million and diluted loss per share, $0.07.

PENN revised its earnings guidance for the full year ended December 31, 2014. It now expects net revenues to be $2.56 billion as compared to $2.55 billion. Revised adjusted EBITDAR should be $697.1 million compared to the $690.9 million from its previous guidance. Revised adjusted EBITDA should be $276.9 million compared to the $271.6 million from its previous guidance.

PENN’s management views

Timothy J. Wilmott, President and CEO of PENN, said that the third-quarter consolidated revenue, adjusted EBITDAR, and adjusted EBITDA exceeded guidance. These figures largely reflect better-than-projected property operating results.

Investments in ETFs

Investors could mitigate the risk of investing in a single casino company by investing in an ETF such as the Consumer Discretionary Select Sector SPDR Fund (XLY). Major casino companies that are part XLY include Las Vegas Sands Corp. (LVS), MGM Resorts International (MGM), Wynn Resorts, Limited (WYNN), as well as PENN.

In the next part of this series, we’ll review PENN’s revenues by segment.


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