MGM Mirage Inc. (MGG), the world's No. 2 casino operator, Wednesday said third-quarter profit dropped 27 percent because of Hurricane Katrina and a year-earlier gain on the sale of a casino in Australia.

Results at its Las Vegas casinos also fell short of expectations and MGM said Las Vegas (search) hotel revenue growth would decelerate, sending shares down 9.1 percent to $39.71 in afternoon trading on the New York Stock Exchange (search).

"In general, the revenue trends were above expectations, but the margins were disappointing," said Marc Falcone, an analyst at Deutsche Bank.

MGM, which in April acquired cross-town rival Mandalay Resort Group (search), expects the pace of Las Vegas hotel room revenue growth to slow from double digits to rates in the mid-single digits for the rest of this year and 2006.

"A little bit of wind has been taken out of the sails of Vegas," said William Schmitt, an analyst at CIBC World Markets.

MGM, whose Biloxi, Mississippi, casino was shut down by Hurricane Katrina, said net income fell to $93.2 million, or 31 cents a share, from $126.9 million, or 45 cents a share, a year earlier, which included a $74 million gain from the sale of MGM Grand Australia.

MGM said the closure of its Beau Rivage casino (search) in Biloxi trimmed profit by 3 cents a share in the latest quarter.

The company also said it had $4 million of bad debt for the quarter, compared with a credit of $12 million in the prior year quarter.

Advertising expenses were also higher in the wake of the late April opening of Wynn Resorts Ltd.'s Las Vegas casino, Bobby Baldwin, chief executive of the company's Mirage Resorts unit, said on a conference call.

"We expect margins to improve into 2006... there are no new competitors ...," President and Chief Financial Officer Jim Murren said.

Excluding discontinued operations, preopening and start-up expenses, and restructuring costs, MGM earned 38 cents a share in the quarter, 3 cents short of the average analyst forecast.

The company expects insurance proceeds to eventually cover the cost of rebuilding Beau Rivage, as well as profits lost during the up to 16 months of anticipated construction time.

Murren projected fourth-quarter earnings of 30 cents to 35 cents per share, which he said is consistent with analyst estimates adjusted for the closure of Beau Rivage.

Analysts, on average, expect a fourth-quarter profit of 35 cents a share, according to Reuters Estimates.

Shares of MGM and other casino operators have come under pressure in recent weeks amid concerns higher energy prices and rising interest rates will cut into discretionary income and put a damper on gambling demand.

"The fourth-quarter guidance does not suggest an impact on consumer demand trends," Falcone said.

Murren also said visitation trends look good for Las Vegas.

"We haven't seen any slowing," the CFO said.

Third-quarter net revenue rose 74 percent to $1.8 billion and was up 10 percent, excluding casinos acquired in the Mandalay deal.

Revenue per room, a measure of hotel performance known as revpar, rose 10 percent at MGM's Las Vegas Strip resorts, including Mandalay properties.

The company forecast revpar growth of about 6 percent in the fourth quarter, compared with year-over-year growth of 13 percent in 2004.

"It's not bad, but it's not the type of growth that's been priced into the shares," Schmitt said.

He said the boom in construction of Las Vegas condominiums and time-shares could potentially cut into demand for hotel rooms.

Same-store casino revenue rose 4 percent, including a 2 percent increase in table games volume and a 4 percent increase in slot revenue.

The fairly slim gains reflect the increasingly tough time MGM is having maintaining recent strong growth rates, Bear Stearns analyst Joe Greff said in a report.

MGM expects to open a casino in the Chinese enclave of Macau in late 2007 and to open its Las Vegas CityCenter project in 2009.