Las Vegas Sands’ Hair Is On Fire (LVS)

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The great dream of Macau has become casino corporations’ worst nightmare. Things are so bad over there, it’s as if Macau got hit with the Black Death plague, Ebola pandemic, or zombie apocalypse. When you hear how bad Las Vegas Sands Corp. (NYSE:LVS) has it over there, you’ll feel like the end is near.

Las Vegas Sands’ Hair is On Fire (LVS)Occupancy fell 7% year-over-year to 83%, which for hotels is bad enough. That this decline in occupancy comes while the rest of the hotel world is booming is downright embarrassing.

At the Venetian, occupancy hit 86%, down from 94.4%. At the Sands Cotai, occupancy came in at 81.5%, down from 88.8%. Even the Four Seasons cratered to 77% from 87%.

These are just awful numbers.

The occupancy decline triggered an 11% decline in revenue per available room (RevPAR), which is the kind of decline domestic hotels saw during the financial crisis. Regular tourist revenue fell 8%, while VIPs continued to flee from the casino, dropping that segment’s revenues by 29%. Betting fell 37%, with slots down 27%. All this trigged a 6% decline in food and beverage spending.

All this obviously impacted operating margins, which were down 3.6%, as well as earnings before interest, taxes, depreciation, and amortization (EBITDA), which cratered 26%. The good news, though, is that EBITDA was still more than $530 million for the quarter.

Things were a bit more stable in Las Vegas. Casino revenues rose 2% and net revenues fell only 1.6%. Operating income rose 2.6%, while occupancy fell to 86.2 % from 88.9%. Average daily rate even rose by 1.2%.

The total revenue for LVS earnings was $3 billion, down 25% overall, and missing estimates by $200 million. Operating income fell 38% to $711 million. Diluted EPS stumbled 33% to 64 cents per share.

LVS has $2.4 billion of cash on hand and $9.2 billion in debt, at a very manageable average weighted interest rate of about 3%.

I have to wonder about the dividend. LVS paid out 65 cents per share while its net income was 66 cents per share. That can’t continue for very long.

So what’s going on?

Some of it is the ongoing crackdown on corruption in China, which is scaring away the high rollers. Rumors are that cameras are installed in high-roller hotel rooms. That’s not going to encourage people to come. China’s economy is struggling, so even the regular folks aren’t headed to Macau for vacation — not that Macau is a vacation spot, since a theme park that opened didn’t do very well.

Even Steve Wynn of Wynn Resorts, Limited (NASDAQ:WYNN) has said he’s puzzled, and if Wynn is puzzled, you have to know that things aren’t quite right. I have to admit that a part of me was always nervous about Macau. You just don’t know what the Chinese government is going to do, and lately, it isn’t helping casinos.

As for LVS stock, it’s trading just over $54 — that’s a 33% decline from its 52-week high. It’s settled into a trading range between $52 and $60.

I have to think we are closer to the bottom than a top, but there may be more downside. If you want to move into LVS stock, you may want to nibble a bit here and average down. Alternatively, you may want to play the trading game. Buy in the low $50s and sell in the high $50s.

As of this writing, Lawrence Meyers did not own shares in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/04/las-vegas-sands-hair-is-on-fire-lvs/.

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