Was Las Vegas Sands’ Earnings Beat Due To Good Luck?

Everyone knows that when you go to Vegas (or, in this case, Macao & Singapore) to gamble, The House usually wins in the long run.   But there’s variance in the short term, and that variance affects The House too.   In this case, The House is Las Vegas Sands ($LVS, no position) and I’m looking at their 8-k filing that details their Q1 2012 earnings.

LVS, like other casino companies, details the breakdown of their casino revenues.    For their Asian business, they give us metrics such as Rolling Chip Volume, Rolling Chip Win %, Non-Rolling Chip Drop, Non-Rolling Chip Win %, Slot Handle, Slot Win%, as well as, most importantly, what they EXPECT those win percentages to be.   I don’t want to get too bogged down in the definition of “Rolling Chip Volume” – but what I want to focus on is the variation between the Rolling Chip Win % and the expected win percentage.

Las Vegas Sands has an expected Rolling Chip Win % (as detailed in their 8-k) of 2.70% to 3.0% at each of their Asian properties.   For Non-Rolling Chip Win %, and for Slot Win %, they don’t give an expected number – rather, they give a TTM: Trailing Twelve Months number.   Well, I went through the filing and compiled all the numbers, and it looked like this (click to enlarge):

Data compiled manually from the 8-k. Errors are possible


What this shows us is the breakdown by property of the different metrics.   Las Vegas and Bethlehem use different metrics, so I kept them separate.

Notice how I used 3.0% for expected rolling chip win % – that’s the top of the range.  Thus, the next estimates for how much variation from normal gambling expectations these results showed will be at the LOW end of the range.  When we do all that, we can get an APPROXIMATION of how lucky or unlucky $LVS was in the quarter.   The table comes out thusly:


So, interpreting this table (the numbers in this table are derived directly from the numbers in the top table.  For example, “Rolling Chip Variation”  = {“Rolling Chip Win %” – Expected Rolling Chip Win %”} x “Rolling Chip Volume”):  at the Four Seasons Macao, the House was unlucky.   They saw negative variance to the tune of almost $ 20MM.   At Marina Bay Sands, however, they House was lucky – they did about $ 67MM better than they expected.   Across all properties, given the gaming profile that they saw, Las Vegas Sands was approximately $ 148MM luckier than they expected to be.   And remember, that number is using the 3% upper end of the range for Rolling Chip Win % expectations.   If you redo the numbers using the midpoint (2.85%) of their expected range, then the total variation number is over $ 210MM.

Now, of course these numbers are APPROXIMATIONS, and they don’t translate directly to the bottom line – there are commissions and rebates involved, but the net effect on revenue should be reasonable close.   So, when you read that LVS beat analyst’s estimates, it seems that the beat was due to luck.   “Revenue jumped 31% to $ 2.76 billion, vs. Wall Street projections of $ 2.62 billion.”   So revenue was about $ 140MM above expectations…  Note the variation number I came up with above?   You can do your own calculations for earnings.

I read a lot of exasperated comments on the $LVS Stocktwits stream today wondering how the stock could be down on such a great earnings report, and some comments complaining about manipulation.   Perhaps, instead, savvy investors tore apart the earnings release much quicker than I did (it’s 1:30 in the afternoon, after all, I’m way late to this party) and came to this “it wasn’t such a tremendous “beat” after all” conclusion early this morning…


disclosure: no position in $LVS at the moment.  I have been long the stock at times earlier today, and may day trade it at any time.

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