Could Las Vegas Sands Earnings Be Even Worse Than Investors Fear?

Parisian Macau mockup. Source: Las Vegas Sands.

Casino giant Las Vegas Sands has reached its prominent heights by making the most of the once-booming Las Vegas gaming market and then switching gears to find even greater success in what has become the Asian gaming capital of Macau. Yet even the gambling industry is cyclical, and the slowdown in China's formerly red-hot growth has created challenging conditions for Las Vegas Sands and its peers in Macau. With the company releasing its second-quarter financial report on Wednesday, Las Vegas Sands investors are bracing for the worst, but even the declines they're expecting could prove to be overly optimistic. Let's take a closer look at Las Vegas Sands to get a better sense of where the casino company stands in its tough market.

Stats on Las Vegas Sands

Source: Yahoo! Finance.

Will fate deal Las Vegas Sands earnings a winning hand? Las Vegas Sands has struggled in recent quarters, and investors have started to give up in their hopes for a fast turnaround. Over the past few months, the consensus forecast for Sands' second-quarter earnings has fallen by a dime per share, and cuts of 10% to 15% in full-year 2015 and 2016 earnings projections show that the pessimism isn't just short term in nature. The stock has failed to recover as well, falling another 3% since mid-April.

Las Vegas Sands' first-quarter results in April showed the extent of the damage that Macau's woes have wreaked on the casino company. Revenue plunged 25% from year-ago levels, and GAAP profits dropped by more than a third from 2014's first quarter. The company's trio of Sands Macao, Sands Cotai, and Venetian Macao all saw declines of between 25% and 35% in net revenue, and figures from the Four Seasons Macao were even worse, falling by more than half. More modest declines in Singapore and Las Vegas helped limit the overall drop, but even though Sands is still quite profitable even at these levels, the company's results were even worse than the low expectations shareholders had going into the report.

On top of all its financial woes, Sands is also having to deal with a high-profile legal dispute. A wrongful termination suit from the company's former Sands China division CEO, Steven Jacobs, has moved to the front burner recently, with the most recent move involving attempts to unseal a report from a private investigator that some groups say could potentially link Sands to organized crime groups in the Macau region. With a Nevada court having accepted jurisdiction of the case, Sands can expect further news items to come out at unpredictable intervals.

Still, the big question remains when Macau might finally hit bottom and start to rebound. On one hand, revenue numbers for the gaming center from June continued to show big declines in activity, with a 36% decline in year-over-year gaming revenue for the month sending the Macau market to its worst performance since late 2010. Yet bullish investors point to just how far the stock and its peers have already fallen, and they also note that moves like an easing of visa restrictions to allow visitors from China to stay in Macau longer could signal an end to the mainland Chinese government's hostility toward the gaming capital.

In the coming Las Vegas Sands financial report, dig deeply into the casino giant's numbers to see what you can find out about the breakdown between its VIP revenue and what it makes from mass-market customers. In the long run, most analysts assume that Sands will have to get more mass-market appeal in order to survive a transition away from the high-roller VIP business, which is the target of Chinese money-laundering concerns. The pace at which Las Vegas Sands can accomplish this transition will go a long way toward determining whether it can put an end to its long slide in sales or whether investors should expect more tough times in the near future.

The article Could Las Vegas Sands Earnings Be Even Worse Than Investors Fear? originally appeared on Fool.com.

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