Penn National Falls After Cutting View on Competition

Penn National Gaming Inc., the casino operator that plans to split into two companies this year, dropped the most since 2011 as bad weather and increasing competition prompted it to cut its forecast.

The shares fell 7.4 percent to $49.98 in New York, after the company reported a second-quarter loss and trimmed its outlook for profit excluding such items as interest and taxes. That was the Wyomissing, Pennsylvania-based company’s largest drop since August 2011.

Penn National, which operates 28 casinos and racetracks, said flooding and tornadoes, as well as “suicidal” marketing tactics by competitors affected its quarterly results. The company cited intense rivalry in the region near Cincinnati, Ohio, after Caesars Entertainment Corp. opened a new location there and weaker-than-expected results from newer casinos in Columbus and Toledo, also in that state.

“I’ve never seen an industry so desperate to give away its bottom line as this industry,” Chairman and Chief Executive Officer Peter Carlino said on a conference call today. “They’re suicidal,” said Carlino, speaking of competitors’ discounts and promotional credits to attract gamblers’ dollars.

Penn National posted a net loss of $12.2 million, or 16 cents a share, for the quarter ended June 30, including a $76 million charge related to the Argosy Casino in Sioux City, Iowa. A year earlier, it earned $66.7 million, or 63 cents, according to a statement.

Earnings before interest, taxes, depreciation and amortization, a measure known as Ebitda, will be $805.1 million for the year, down from a prior forecast of $875.8 million previously, according to the statement.

Ohio Casinos

Penn National’s Columbus, Ohio, casino, which opened last year, hasn’t achieved the market share or margins anticipated, the company said. And while the company’s Toledo property, also new in 2012, met revenue expectations, its operating margin has been lower than anticipated.

The company will still earn a return of greater than 20 percent on its investment in the Columbus and Toledo casinos, Chief Financial Officer William Clifford said on the call.

“So we are not in any shape or form panicked about our return,” he said.

Penn National owns the Hollywood Casino in Lawrenceburg, Indiana, that competes with the Horseshoe Casino, twenty miles west in Cincinnati. That property, which is owned by Rock Gaming LLC and Caesars, opened in March.

Company Split

Penn National will try to maintain its slot machine customers “and not chase this insanity,” executives said.

Caesars is focused on building long-lasting relationships through its loyalty program, Gary Thompson, a company spokesman said via e-mail.

Penn National plans to split later this year into two publicly traded entities, a real estate investment trust, Gaming and Leisure Properties Inc., which will own the casinos, and a management company, Penn National, which will run the businesses.

The company lowered the anticipated annual rent which will be paid to the trust by $16.6 million to $420 million. That will result in a less-than-expected dividend payment to trust shareholders of $2.32 a year, instead of $2.44.

The company’s shares are up 1.8 percent this year, while the Russell 1000 Index has added 19 percent.

(Corrects closing price information in second paragraph of story published yesterday.)
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