Moody’s sees slight improvement in US casino finances
HARTFORD, Conn. (AP) — U.S. casino finances are improving, but just slightly, Moody's Investors Service said Tuesday as it raised the industry's rating to stable from negative.
It cited rising revenue, cost-cutting and easing of "cannibalizing" by casinos poaching business from established enterprises. Revenue is flattening out, rather than falling.
"We're not saying they're getting better," analyst Keith Foley told The Associated Press. "At least, it's some breathing room. It's better than if it went the other way."
Foley bases his higher rating on the belief that revenue will increase between zero and 2 percent each month year-over-year for the next 12 to 18 months, leading to an increase in profit of 3 to 4 percent excluding taxes and other items.
"While not a stellar performance, we consider this broader improvement a tangible sign of sector revenue stability," Foley said in an industry outlook.
Moody's previously rated the industry negative, down from stable due to declining revenue, weak demand and other problems. Several casinos that began expansion plans were caught short at the start of the recession in late 2007 and 2008 when revenue fell off and refinancing debt was nearly impossible as capital locked up.
In May, revenue gambling rose in all 18 states tracked by Moody's, except Connecticut and New Jersey.
Foley said casino operators "may be running out of room to cut costs much further."
"Too much cost-cutting could sacrifice quality and service, which operators cannot afford at a time when they are battling for market share amid supply increases," he wrote.
In addition, consumers remain under pressure due to weak growth in disposable personal income and will continue to limit spending on gambling, Foley wrote in his outlook.
Trends in monthly revenue will determine if Moody's raises its outlook again. A rise to a positive rating is possible if revenue increases more than 2 percent and operating profit more than 4 percent for two consecutive months and if Moody's anticipates that the rates will continue rising for the next six to 12 months.
Moody's would change the outlook to negative if monthly revenue declines and profit excluding taxes and other items decreases more than 4 percent for two consecutive months and Moody's believes the declines will continue.
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