Penn National Gaming, Inc. (PENN)

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Penn National Gaming (PENN)

Q4 2011 Earnings Call

February 02, 2012 10:00 am ET


Joseph Jaffoni -

Peter M. Carlino - Chairman of the Board and Chief Executive Officer

Timothy J. Wilmott - President and Chief Operating Officer

William J. Clifford - Chief Financial Officer and Senior Vice President of Finance

Steve Ducharme - Chairman of Compliance Committee

Eric Schippers - Senior Vice President of Public Affairs


Mark Strawn - Morgan Stanley, Research Division

Joseph Greff - JP Morgan Chase & Co, Research Division

Shaun C. Kelley - BofA Merrill Lynch, Research Division

Carlo Santarelli - Deutsche Bank AG, Research Division

Dennis I. Forst - KeyBanc Capital Markets Inc., Research Division

Cameron Philip Sean McKnight - Wells Fargo Securities, LLC, Research Division

Larry Klatzkin



Ladies and gentlemen, thank you for standing by and welcome to the Penn National Gaming Fourth Quarter Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead, sir.

Joseph Jaffoni

Thank you, operator. And good morning, everyone, and thank you for joining Penn National Gaming's 2011 Fourth Quarter Conference Call. We'll get to management's presentation and comments momentarily, as well as your questions and answers, but first, we'll review the Safe Harbor disclosure. In addition to historical facts or statements of current conditions, today's conference call will contain forward-looking statements that involve risks and uncertainties within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the company's current expectations and beliefs, but are not guarantees of future performance. As such, actual results may vary materially from expectations. The risks and uncertainties associated with the forward-looking statements are described in today's news announcement and in the company's filings with the Securities and Exchange Commission, including the company's reports on Form 10-K and Form 10-Q.

Penn National Gaming assumes no obligation to publicly update or revise any forward-looking statements. Today's call and webcast may include non-GAAP financial measures within the meaning of SEC Regulation G. And when required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's press release as well as on the company's website.

And with that, I'll open the call by turning it over to Peter Carlino, the company's Chairman and CEO. Peter?

Peter M. Carlino

Thanks very much, Joe. And good morning, everyone. Welcome to our quarter and year-end earnings release. Well, looks like we wound up another good year at Penn, good from a number of points of view. Obviously, good earnings growth, consistent margin improvement, a pretty solid year all around. I will say in the last quarter, just to characterize that a bit, October was surprisingly soft. November was pretty stable and December was terrific. So these things become, in the current climate, ever harder to predict.

I can also say that we're off to a great start this year, but let's see how it plays out.

Here's a look at guidance, those on the wire from a remote location, and I suspect you'll have some questions about that. We've taken some say a conservative view. I think we've tried to take a realistic view, look ahead at the economy, which still remains sort of uncertain. It's hard to have a crystal ball for these things, so we try to be very cautious.

And as we've said to you before, our view is obviously through 2012 and into 2013. So if you will, we kind of look at these as a -- this is a multiple-year experience. We will open all 3 of our facilities, big, new, exciting facilities this year and they are terrific. We know the results are going to be outstanding, so that's the way we sort of package this internally. We always -- somebody -- is there a problem on the line? We always take the long view here at Penn.

So with that very brief preamble, let me ask Tim. Do you want to make a couple of comments, Tim?

Timothy J. Wilmott

Just a couple, Peter. Thank you. As Peter said, the quarter was -- started slow, but finished strong. We certainly believe the weather in December was -- and the calendar were favorable to the year-over-year comparisons that you all saw. And obviously, the weather here in January has been very good as well. We are assuming really no change in consumer behavior for 2012.

But as I look back on the fourth quarter, we essentially saw slightly above year-over-year increase in same-store sales growth. The strength in the business in the fourth quarter was really at the VIP segment, the $400 and above level, that's where we saw the greatest strength. Good news still out there is for the most part, the promotional environment is still very rational, which has given us an opportunity to continue to refine our marketing reinvestment and at -- in areas where we're having softer business volumes, also looking at our cost structure from a labor standpoint, which resulted in the margin improvement we showed year-over-year of over 200 basis points. So more the same of what we saw in the previous 3 quarters for 2011. And so far, so good as we enter 2012.

Peter M. Carlino

Very good. So why don't we -- operator, let's open the floor to questions.

Question-and-Answer Session


[Operator Instructions] Our first question comes from the line of Mark Strawn of Morgan Stanley.

Mark Strawn - Morgan Stanley, Research Division

One question on your fiscal '12 guidance. It looks like the adjusted EBITDA margins are basically flat year-over-year. Can you just walk us through your thoughts there? I imagine cannibalization plays a part in that assumption?

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