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Best of Liz Benston

Gaming Guru

Liz Benston

Caesars Warns of Strike's Effect

21 October 2004

LAS VEGAS -- Caesars Entertainment Inc. earnings rose 21 percent in the third quarter as profit margins rose nationwide, though the company said it would earn less than expected in the fourth quarter.

The Las Vegas-based casino giant today reported profit of $58 million or 18 cents per share in the third quarter compared with profit of $48 million or 16 cents per share in the same quarter of last year.

The company said it would earn from 4 to 6 cents per share in the fourth quarter, lower than analysts' average estimate of 8 cents.

The lowered estimate stems in part from uncertainties surrounding a strike in Atlantic City involving seven casinos, three of which are Caesars properties.

The company has reduced or eliminated some services because of the strike, while some customers have chosen to delay their visits, Caesars Chief Executive Wally Barr said in a conference call today.

Echoing statements made by other casino bosses Wednesday during corporate earnings calls, Barr said the company doesn't intend to give in to union workers' demands for a three-year contract that would expire at the same time as contracts for hotel and restaurant workers in Las Vegas.

The five-year contract "is the principal outstanding issue for Caesars," Barr said.

Local 54 of the Hotel Employees and Restaurant Employees union in Atlantic City, which is affiliated with the Culinary Union in Las Vegas, has said that other issues remain outstanding and that the three-year contract would give the union more clout against increasingly powerful casino giants.

While the company awaits regulatory approval of its acquisition by Harrah's Entertainment Inc., Caesars executives say the company isn't stalling any of its own plans to build casinos.

Those include a Caesars-brand casino near London to coincide with plans to rewrite Britain's gambling laws to allow more casinos and Las Vegas-style slot machines. Also, the company plans to exercise a final payment option on a prime casino site in Philadelphia, Barr said. Harrah's also has casino development plans under way in Pennsylvania, which recently legalized slot machines.

Excluding certain one-time expenses, profit was $68 million or 22 cents per share -- 2 cents above analysts' estimates -- compared with $45 million or 15 cents per share a year earlier.

The one-time items in the third quarter included $9 million in operating results from two casinos the company intends to sell to Colony Capital, $9 million to write down the book value of Caesars Tahoe, $6 million in expenses related to the pending merger with Harrah's Entertainment Inc., $5 million in income tax expense to settle a dispute with Lakes Entertainment Inc. and $4 million in startup expenses related to a new musical at Caesars' Paris Las Vegas.

Revenue companywide rose 4 percent to $1.12 billion and cash flow -- a key performance indicator for casinos -- rose 12 percent to $293 million.

Revenue at Caesars' Nevada casinos rose 8 percent to $490 million and cash flow rose 25 percent to $115 million. Growth was greatest on the Las Vegas Strip, where higher room rates boosted cash flow by 31 percent.

Company flagship Caesars Palace reported a 12 percent increase in revenue to $140 million. Cash flow at Caesars Palace rose 27 percent to $28 million. Room revenue rose but gaming revenue declined 2 percent.

Caesars Palace is experiencing more traffic from two bridges leading into the property from a new outdoor plaza and retail area, Barr said. The third phase expansion of the Forum Shops mall, which opens Friday with 175,000 square feet of retail space, opens a third entrance to the property from the Strip sidewalk, he said. A new nightclub will open by the end of the year and a new hotel tower opens next summer.

In Atlantic City, revenue at the company's Bally's and Caesars casinos was flat at $320 million but cash flow rose 4 percent to $109 million -- better than the company expected given new competition from the newer Borgata resort. The company has signed an agreement to sell its Atlantic City Hilton casino as well as its Bally's Tunica property to Colony Capital.

Caesars shares rose 8 cents to $17.31 per share in early trading today.