Dull Q1 & Dividend Cut in Wynn Hit Casino ETF - ETF News And Commentary

Casino giant, Wynn Resorts Ltd. (WYNN), came up with Q1 financial results after the closing bell on April 28 and dampened investors’ confidence with a massive miss on both top and bottom lines. This was the casino giant’s second successive miss on both counts. A persistent weak performance in Macau, Wynn’s largest market, was responsible for this massacre.

If this was not enough to spoil things, WYNN slashed dividend by as much as 67% to 50 cents from the previous cash dividend of $1.50 per share paid on February 23, 2015. Quite expectedly, the share price of WYNN collapsed in the key trading session of April 29 plunging over 16.6%. After hours, the stock went on losing about 0.2%. WYNN share price is now hovering at a two-year low level (read: Is China A-Shares ETFs Rally Over?).

WYNN Q1 in Detail

Adjusted earnings came in at 70 cents per share against the Zacks Consensus Estimate of $1.36. The casino operator also staggered on the top line. Its revenues of $1.09 billion fell short of the Zacks Consensus Estimate of $1.21 billion.

Investors should also note that the company’s revenues fell about 27.8% year over year while its adjusted earnings per share were down about 70% from the year-ago level. As much as a 37.7% plunge in Macau revenues was blamed for the top-line underperformance. Though both the VIP and the mass market segments in Macau underperformed in the quarter, the VIP section was hit hard.

Macau: The Key Concern

Macau has been a cause of concern for casino operators since mid last year. In fact, gambling revenues from the region have declined in double digits since September 2014. The region has started to lose its prior charm due to the check on illegal money transfers – especially in VIP gaming – from mainland China to Macau and constraints on visa which has lowered footfall at the casinos. Added to this, the smoking ban in casinos and a cooling Chinese economy spell trouble for the Macau operations (read: Will Troubles in Macau Spoil Gaming ETF Investments?).

Outlook provided by Wynn was also grim as management pointed to persistent gloom over the Macau business and the recovery timeline of this appears hazy. Wynn Resorts is the not the only prey to Macau slowdown as another company, Las Vegas Sands Corp. (LVS),  also had a disappointing start to 2015 as its first-quarter earnings and revenues missed the Zacks Consensus Estimate due to the same reason. Following the earnings release on April 22 after market, the stock was down 6.2% (as of April 29, 2015).

Las Vegas Sands’ Q1 earnings of 66 cents missed the Zacks Consensus Estimate by 10.8% and year-ago earnings by 32%. Quarterly net revenue of $3.01 billion also missed the Zacks Consensus Estimate of $3.38 billion and declined 25% year over year.

Investors should note that entire casino space was startled by Wynn’s dull results and dividend cut news. MGM Resorts (MGM), which is yet to report earnings, was off about 5.6% on April 29. The impact should be felt in the casino gaming ETF Market Vectors Gaming ETF (BJK) also as the trio has found a place in the top 10 holdings of the fund with a considerable share. For investors seeking to keep a watch on this ETF in the coming days, we have taken a closer look at some of the details of this fund:

BJK in Focus
 
The fund looks to track the Market Vectors Global Gaming Index and provides investors direct exposure to the casino gaming market.  The fund has so far attracted $31 million in assets and is invested it in 46 holdings. The product is expensive as it charges 65 bps in fees per year which is on the higher end of the expense ratios prevailing in the consumer discretionary ETF space.

Wynn Resorts Ltd takes the fourth spot in the fund with about 5.5% weight while Wynn Macau Ltd takes 2% weight in the fund. Both companies – Sands China and Las Vegas Sands – have about 15% exposure in BJK.     MGM Resorts International, a fifth position holder in the fund, takes 6.2% of BJK along with MGM China Holdings Ltd. The fund lost 3.4% on April 29 and is down 2.3% so far this year.

It currently has a Zacks ETF Rank #4 (Sell) with a High risk outlook. Also, the Zacks Industry Rank of the aforementioned companies resides at the bottom 27% portion giving cues of threats to the space (read: Should Investors Avoid These ETFs in 2015?).

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WYNN RESRTS LTD (WYNN): Free Stock Analysis Report
 
LAS VEGAS SANDS (LVS): Free Stock Analysis Report
 
MGM RESORTS INT (MGM): Free Stock Analysis Report
 
MKT-VEC-GAMING (BJK): ETF Research Reports
 
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