Macau Crushes Las Vegas Sands Earnings, but Investors Have Hope

Image: Las Vegas Sands.

Iconic gambling-resort company Las Vegas Sands has faced huge struggles over the past couple of years, as its focus on the once-thriving gambling mecca of Macau has left it vulnerable to tough times in Asia's most important gambling market. Coming into Wednesday afternoon's second-quarter financial report, Las Vegas Sands investors knew that things would be bad for the company this quarter, even as they were hoping to see some signs of a brighter future. Although the casino giant ended up failing to meet even the low expectations investors set for it, Las Vegas Sands nevertheless gave long-term shareholders some hope that better times could lie ahead. Let's take a closer look at how Las Vegas Sands fared this quarter and why some investors still have hope for its future.

Sands suffers the slowdownLas Vegas Sands' key financial numbers for the second quarter were even uglier than most of those following the stock had expected. Sales plunged more than 19% to $2.92 billion, which fell short of the 17% drop that most investors were looking to see. Net income on a GAAP basis fell an even steeper 30% to $469.2 million, and the company posted adjusted earnings of $0.60 per share, just barely missing the consensus forecast by a penny.

Looking more closely at Las Vegas Sands' individual business units shows how widespread the problems for the company were. Revenue at its Venetian Macao resort fell 28%, leading to a 42% drop in operating income. Occupancy rates at the property dropped by nearly seven percentage points, and lower average daily rates produced a nearly 16% drop in revenue per available room. Sands Cotai Central suffered similar revenue losses that cut operating income nearly in half, and the Sands Macao saw revenue and operating income both fall by more than a fifth. Only the Four Seasons Hotel Macau and Plaza Casino managed to post operating-income gains, overcoming a more than 10% drop in revenue to do so.

Outside Macau, Las Vegas Sands still saw weakness in several areas. The Marina Bay Sands in Singapore suffered an 11% drop in net revenue, sending operating income down by 10%. Las Vegas properties, including the Venetian and the Palazzo, held up much better in terms of revenue, with hotel and restaurant gains helping to offset losses from the casino, but operating income still plunged by nearly a quarter. Only the Sands Bethlehem property in Pennsylvania produced strong gains in both sales and operating income, and it has only a small impact on the company as a whole.

Despite the troubling results, CEO Sheldon Adelson stayed upbeat. "Our focus on the higher margin mass and non-gambling segments and the geographic diversification of our cash flows allowed us to again deliver in excess of $1 billion of adjusted property EBITDA during the quarter and weather this cyclical downturn better than the industry overall," Adelson said.

Why are Las Vegas Sands investors optimistic?Looking ahead, Las Vegas Sands expects a recovery to prove the viability of its long-term strategy. "We remain confident that our market-leading Cotai Strip properties," Adelson said, "will continue to provide the economic benefits of diversification to Macau, help attract greater numbers of business and leisure travelers, and provide an outstanding and diversified platform for growth in the years ahead."

At the same time, Las Vegas Sands is taking steps to make sure it makes the most of what revenue does come in. Keeping expenses down allowed the company to boost its operating margins by a percentage point and a half to 31.7%, and even though the impact wasn't as evident with revenue coming down so quickly, Las Vegas Sands will benefit greatly from its cost-cutting efforts once conditions normalize in Macau.

The resort giant still remains confident about its expansion plans as well. With the coming Parisian Macau and the St. Regis tower at the Sands Cotai Central, Las Vegas Sands is betting that adapting to the changing mix of business in the Asian gambling capital away from high-roller VIPs toward mass-market tourists will put it in a better competitive position than its peers.

It's likely because of the company's optimism that traders seemed willing to give Las Vegas Sands the benefit of the doubt, sending the stock up more than 3% in after-hours trading following the casino giant's announcement. Shareholders shouldn't conclude that the company is out of trouble just yet, but if things work out the way Las Vegas Sands expects, investors will look back on this period as a momentary blip in a long-term uptrend.

The article Macau Crushes Las Vegas Sands Earnings, but Investors Have Hope originally appeared on

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