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Arnold M. Knightly

Harrah's deals itself winning quarter

8 November 2007

LAS VEGAS, Nevada -- Harrah's Entertainment said Wednesday that recent acquisitions and stronger-than-expected returns from the company's Atlantic City region helped drive third-quarter profits higher.

The world's largest gaming company by revenue reported a net income increase of 38 percent to $244.4 million, or $1.28 per share, in the three months ended Sept. 30, according to a company statement. The company reported net income of $177.2 million, or 95 cents per share, in 2006.

Revenue rose 13 percent to $2.8 billion from $2.5 billion.

Adjusted earnings from continuing operations, which excludes Hurricane Katrina-related insurance proceeds, climbed to $1 per share from 94 cents reported last year.

Analysts polled by Thomson Financial expected net income of $1.01 per share and revenues of $2.7 billion. Earnings estimates typically exclude one-time items.

"Property level revenues came in ahead of our estimates," Joseph Greff, a gaming analyst for Bear Stearns, wrote in a note to investors.

He said the cash flow increases were driven by strong performances from properties in Las Vegas, Atlantic City and overseas.

The gaming company, which is being bought for $17.1 billion by a joint-venture partnership between private equity firms Texas Pacific Group and Apollo Management, did not conduct a conference call with investors.

Company cash flow, defined as earnings before interest, taxes, depreciation and amortization, increased 15.4 percent to $790.4 million from $684.7 million for the quarter.

Revenues for the first nine months of 2007 increased 13.2 percent, to $8.2 billion from $7.2 billion in 2006.

Cash flow increased 7.6 percent, to $2.2 billion from $2 billion last year.

Harrah's Strip properties continued to account for a third of the company's revenue and cash flows.

Cash flow for the Las Vegas properties increased 13.5 percent to $275.8 million on revenues of $900.4 million, a 10.8 percent increase from last year.

The area's cash flow increased 10.5 percent, to $879.9 from $796.5 million, for the first nine months on an 11.5 percent increase in revenues of $2.7 billion.

Harrah's owns and operates Caesars Palace, Rio, Paris Las Vegas, Bally's, Bill's, Flamingo, Imperial Palace and Harrah's.

The company's Atlantic City region also rebounded from a poor second quarter, which saw double-digit decreases in cash flow, driven by a strong performance by Harrah's Chester Casino & Racetrack, which opened in late January

The five area properties' cash flow increased 8.6 percent, to $202.7 million from $186.6 million, for the quarter on a revenue increase of 19.9 percent to $671.5 million from $560.2 million for the quarter.

The turnaround was not enough to save the region's cash flow for the year, which fell 3.6 percent, to $478.8 million from $496.9 million.

The company said it has not yet determined the full impact of new smoking restrictions, increased slot competition and increased marketing costs in the Atlantic City region, according to the company's release.

Revenues increased 15.2 percent, to $1.8 billion from $1.6 billion, for the first nine months.

A 177 percent increase in international revenue to $165 million for the quarter was driven by Harrah's $570 million purchase of the London Clubs in December, giving it six casinos in England, two in Egypt and one in South Africa.

Harrah's continues to struggle in Nevada outside the Las Vegas market.

Revenues decreased 3.8 percent to $176.4 million from 183.4 million for the quarter in Lake Tahoe, an area hit by wildfires in summer. Cash flow decreased 8.3 percent to $50 million from $54.5 million for the quarter and had a 9.7 percent decrease to $117.4 million from $130 million for the year.

Harrah's announced two large Las Vegas projects in the third quarter: the $1 billion expansion at Caesars Palace in August and $500 million joint-venture to build an arena on 10 acres behind Bally's and Paris Las Vegas.

The purchase of the 175-acre Macau Orient Golf Club for an undisclosed amount also occurred during the quarter. The buyout is in the regulatory process and is scheduled to go before Nevada gaming regulators in December.

Shareholders approved the deal in April.

The stock price will continue to be tied to the buyout offer of $90 per share, not earnings reports and other market factors.

Harrah's shares slipped 76 cents to close at $86.62 Wednesday. They have gained about 4.7 percent this year.

Harrah's deals itself winning quarter is republished from