After beating Street expectations, Riviera Holdings Corp. warns of costs
Riviera Holdings Corporation (Amex: RIV) executives warned investors during an afternoon conference call that the company’s upcoming results will be negatively impacted by state smoking bans, one-time charges and legal fees.
The company’s net income in third-quarter ending June 30 will be adversely affected by a one-time charge of about $12.9 million to record the call premium on the 11% notes that were redeemed in July and the write-off of the remaining deferred financing costs, CEO William Westerman said during the call. He also said $1.5 million in charges related to merger and acquisition efforts have hindered results for the last year and a half.
Riviera owns and operates the Riviera Hotel and Casino in Las Vegas and the Black Hawk Casino in Black Hawk, Colorado.
"We are continuing to work with our financial advisor, Jefferies and Company, Inc. on our strategic process to maximize shareholder value,” Westerman said.
Riviera has also begun to plan for the Colorado smoking ban, which becomes effective on New Year’s Day, 2008.
“We believe the impact of this decision – although not yet quantifiable - will be adverse to our 2008 results, and we are in the process of planning some infrastructure changes which we hope will lessen that impact,” Mark Lefever, president of Riviera, said.
The company plans to refurbish all rooms in its Las Vegas hotel and remodel the casino floor. In Colorado, the company is renovating its facility in order to meet the requirements of the smoking ban. The projects will cost the company $25 million over the next 30 months.
Before the opening bell, Riviera reported second-quarter net income of $3.6 million, or $0.28 per share, above Wall Street’s estimate of $0.15. During the same period of 2006, the company’s net income was $3.2 million, or $0.03 per share. Riviera recorded quarterly revenue of $53.7 million, on par with analyst expectations of $54 million and up from $52.5 million a year earlier.
Riviera said in a press release that net income included the effects of the increase in interest expense, offset by the favorable effect of $827,000 recorded as a gain on the derivative resulting from the interest rate swap on its new term loan.
To boost revenue, Riviera is obtaining the list of gamblers at the New Frontier Hotel in Las Vegas and plans to market to these customers.
“We believe the effects of this arrangement will transition loyal Frontier guests into loyal Riviera guests,” COO Bob Vannucci said during the call.
During the second quarter, the company’s culinary union contract expired, but Vannucci said the company has started negotiations with the union.
During the call, a private investor complained about the company’s parking in Las Vegas, but Vannucci said the company’s current parking facilities are part of a “long-term master plan.”
“For the foreseeable future, you see the parking that’s there,” Vannucci said.
In late afternoon trading, shares of the small-cap company were down $2.37, or 7.8%, at $28. Over the last 52 weeks, shares have ranged between $18.50 and $39.12.
