MGM Resorts International (MGM): Results to Be Impacted by China Crackdown

MGM Resorts International (NYSE:MGM) will have continued to face the issue of China’s crackdown on graft in the gambling hub of Macau in the first quarter. The company’s fourth quarter results were also impacted by the same issue. It only now appears that there is no respite from the Chinese Government’s fight against corruption involving senior officials.

As a result, MGM Resorts International (NYSE:MGM) will have to look up at other divisions, like film and TV, to offset the weakness witnessed in the gambling segment. Have they compensated in the first quarter remains a question, since there were no favorable conditions.

Key Factors

The company disclosed earlier that it was planning to release Hot Tub Time Machine 2, Hot Pursuit and Poltergeist in the first quarter. The initial reviews do not provide an encouraging sign to offset the weakness in the gambling section.

MGM Resorts International (NYSE:MGM)’s Hot Tub Time Machine 2 was released in February and received an average rating. Only 33% of the audience liked the movie. It appears to have grabbed $12.3 million in the U.S. box office. However, the company’s other film, Hot Pursuit, will be released in May. Therefore, the film division is unlikely to post any significant surprise unless the expectations are lower. This means that TV content should provide some solace to the first quarter results.

Macau Gambling

China has been cracking down on the world’s biggest gambling hub, Macau, which is a Portuguese colony. In the fourth quarter also, the Chinese Government has taken actions against its officials in their fight against corruption. Recent reports indicated that at least seven people, who included government officials, were under the investigators scanner for allegedly accepting bribes.

The crackdown is undoubtedly a dampener for the companies dependent on gambling, including MGM Resorts International (NYSE:MGM). The segment has already been witnessing a steep drop in revenues since high rollers prefer to stay away from the scene, for fear of being caught in corruption charges. Revenue in April was predicted to plummet 40%. This means that Macau will have recorded its 11th straight monthly fall in revenue from the region.

What To Expect

On average, 17 analysts estimated the company to report a profit of 14 cents a share and $2.42 billion revenue for the March quarter. The company delivered earnings of 22 cents a share and $2.63 billion revenue in the 2014-first quarter. This means that the Street analysts are predicting EPS to drop 45.5% and revenue to drop 8.1% in the first quarter.

Street analysts have reduced their EPS expectations from 16 cents a share three months ago. In the last two quarters, MGM Resorts International (NYSE:MGM)’s earnings fell shy of the estimations very widely, due to Macau. The company will report its results on May 4 before the bell.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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