Las Vegas Sands Earnings: Playing With a Bad Hand

It's stick-with-the-rotten-poker-hand time at Las Vegas Sands these days. The big casino operator just released its Q1 2015 results, and they show steep declines in nearly every property the company owns.

The stock was down in after-hours trading last night following the release. A sell-off was to be expected; here's a little more as to why.

QuicksandAll told for the quarter, the company brought in just over $3 billion in revenue, a 25% fall from Q1 2014's $4 billion. The drop in net profit across that span of time was even more pronounced, at 34% (to $512 million, or $0.64 per share). On an adjusted basis, the bottom line fell by 28% to $531 million ($0.66).

Analysts were anticipating a lousy quarter, but the company fell short of even those diminished expectations. The average projection was for an EPS of $0.71 on revenue of $3.2 billion.

The albatross currently weighing on Las Vegas Sands is Macau, the Chinese enclave where it derives most of its revenue. A government crackdown on corruption has eviscerated the VIP segment of the market, draining business away from local casinos. The initiative was launched last year, and it hasn't relented since.

All of the company's Macau properties saw queasy declines for the quarter. Sands Macao suffered a 28% drop in net revenue on a year-over-year basis in the period... and it was the best performer of the bunch! Sands Cotai and Venetian Macao suffered declines of 31% and 34%, respectively, and Four Seasons Macao tumbled off a cliff by an ugly 56%.

Other markets performed better. Relatively speaking, that is.

The take for the company's huge Marina Bay Sands resort -- one of only two casino complexes on the island nation of Singapore -- fell by 6% on a year-over-year basis. This was in sharp contrast to its Q4, in which it advanced by a mighty 27% and nearly made up for that quarter's Macau losses.

In America, revenue for the company's Las Vegas assets declined by nearly 2%. Its facility on the east coast, Sands Bethlehem, did see a nice lift of 9%. But this only equated to $128 million, a very tiny piece of the company's overall business.

Staying in the gameYet Las Vegas Sands' Q1 numbers weren't all grim. The company is still managing to net a sizable net profit. Its $511 million can't compare to previous quarters, but at a 17% margin, it's surely the envy of not only fellow casino operators (several of which are contending with the same problems), but many companies across various economic sectors.

Going forward, much depends on developments in Macau -- I can't imagine that Marina Bay Sands will have another shockingly bright quarter, for example, or that the U.S. market will pick up to any significant degree. Or that hopes for legalized casino gambling in Japan are going to be realized soon, if at all.

Rendering of The Parisian Macao. Source: Las Vegas Sands

Perhaps at some point, the Chinese government will retract its claws from the enclave. Until then, Las Vegas Sands will eagerly await the opening of its Parisian Macao, a complex scheduled to turn on its lights next year.

The French-themed resort's offerings are aimed at the mass market, so it should be able to side-step the crackdown. Unfortunately for Sands, rivals Wynn and MGM Resorts International are also building mass-market complexes in the area, so its competitive edge might be dulled from the start.

So, absent of any immediate opportunities, Las Vegas Sands will keep its cards and ride out this bad hand. Perhaps a future round will be more favorable.

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Eric Volkman has no position in any stocks mentioned. Nor does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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