Las Vegas Sands Corp.’s (LVS - Analyst Report) third quarter 2014 earnings were in line with the Zacks Consensus Estimate as growth in mass market gambling and the non-gaming segment partly tempered the effect of a decline in VIP gambling. This caught investors’ attention.

Consequently, share price rose 1.2% during aftermarket trading hours. However, weak performance in Macau was the reason behind revenues missing the consensus mark in the quarter.

Las Vegas Sands Corp - Earnings Surprise | FindTheBest

The company authorized an additional $2.0 billion under its share repurchase program and also increased its quarterly dividend by 30% to 65 cents per share.

Quarterly Results

Adjusted earnings of 84 cents per share increased 2.4% year over year owing to lower operating expenses. Adjusted earnings exclude pre-opening expense, development expense, loss on disposal of assets and loss on modification or early retirement of debt.

Not surprisingly, quarterly net revenue of $3.53 billion missed the Zacks Consensus Estimate of $3.67 billion by 3.8% and declined 1% year over year. Gross gaming revenues in Macau had declined in all the three months of the quarter. The downside reflects the slowdown in gambling in Macau as high-stake gamblers curtailed spending amid a cooling Chinese economy. Also, it comes in the wake of a nationwide crackdown on corruption in China that compelled Macau officials to impose restrictions on VIP gamblers in order to stop billions of dollars from being siphoned off illegally from mainland China to Macau.

On a hold-normalized basis, adjusted property EBITDA increased only 0.4% to $1.26 billion. Operating expenses declined 3.5% year over year due to 4% decline in resort operation expenses.

Property Details

Macau Operations

The company's Macau business includes the following resorts:

Four Seasons Macau

Revenues at the Four Seasons Hotel Macau and Plaza Casino fell 19.6% to $265.4 million mainly due to a decline in casino revenues and food and beverage revenues. Adjusted property EBITDA also declined 10.4% year over year to $101.2 million. Four Seasons revenue per available room (RevPAR) increased only 7.5%, driven by a 7.7% rise in average daily rate (ADR).

Sands Macau

Sands Macau's revenues also declined 8.3% year over year to $280.1 million owing to a decline in casino, room and food and beverage revenues. Adjusted property EBITDA also declined 2% year over year to $88.1 million. Sands Macau's RevPAR declined 7.6% due to a 9.9% decline in ADR.

Marina Bay Sands, Singapore

Revenues at Marina Bay Sands declined 5% year over year to $735.5 million owing to an 8.7% decline in casino revenues. Adjusted property EBITDA also plunged 5.9% year over year to $351.7 million.  Sands recorded 16.3% RevPAR growth, driven by a 16.7% rise in ADR.

The Venetian Macau

Net revenue increased only 0.8% year over year to $943.0 million at The Venetian Macau driven by an increase in room, food and beverage and convention, retail and other revenues, partially offset by an increase in promotional allowances. Increase in room revenues reflects an 11.2% increase in average daily rate and a 13.1% increase in RevPar.

The troubles in Macau compelled the company to provide promotional offers that led to a significant increase in promotional allowances. Rolling Chip volume plunged 28.4% year over year to $10.1 billion.

Adjusted property EBITDA was down 1.3% year over year to $352.7 million in the third quarter.

Sands Cotai Central

Net revenue at Sands Cotai Central climbed 10.8% year over year to $816.5 million. The quarterly revenues were attributable to higher mall revenues, room revenues, casino revenues and strong traffic. Non-Rolling Chip drop increased 32.3% while Rolling Chip volume declined 32% year over year.

Adjusted property EBITDA was $267.0 million, up 19% year over year. RevPAR increased 21.7%, driven by ADR growth of 15.8%. Visitation to the property continues to grow and reached 5.4 million in the quarter.

Las Vegas Operations

Net revenue from the Las Vegas operations, which comprise The Venetian Las Vegas and The Palazzo, increased 1.5% year over year to $380.5 million, mainly due to an increase in room and convention, retail and other revenues.

Increase in room revenues reflects a 9.4% increase in RevPAR, 4.1% increase in ADR and 430 basis points (bps) increase in occupancy rate. Adjusted property EBITDA also increased 3.6% year over year to $90.2 million.

Sands Bethlehem, Pennsylvania

Net revenue at Sands Bethlehem was $127.3 million in the quarter, up 3.6% year over year. Increases in casino and room revenues were partially offset by decline in food and beverage revenues. Room revenues increased driven by a 13% rise in RevPAR, 730 bps rise in occupancy rate and 2.8% increase in average daily rate. Adjusted property EBITDA increased 0.7% year over year to $29.8 million in the quarter.

Our Take

Las Vegas Sands is heavily dependent on mass market gamblers. Moreover, the trend of declining revenues from VIP gamblers in Macau is not expected to improve in the near-term. This would keep the revenues under pressure, going forward. Other companies that are also facing the brunt of a weak gambling business in Macau include Wynn Resorts Ltd. (WYNN - Analyst Report), MGM Resorts International (MGM - Analyst Report) and Melco Crown Entertainment Limited (MPEL - Snapshot Report).

Nevertheless, we expect Las Vegas Sands’ strong brand portfolio and solid mass market revenues to bode well for the company over the long-term. Moreover, its practice to return shareholder wealth would retain investor confidence in the stock. Las Vegas Sands presently has a Zacks Rank #3 (Hold).

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