Surge in Gambling Revenue Doubles Harrah's Entertainment Earnings

The acquisition of the Horseshoe casino chain in the Midwest and revenue growth in Las Vegas helped boost fourth-quarter profit at Harrah's Entertainment Inc. by 118 percent.

In conjunction with the earnings report, Harrah's Entertainment Chief Executive Gary Loveman today reiterated expectations that the company's acquisition of Caesars Entertainment Inc. will be complete by June.

Loveman also said Caesars has emerged in recent months with stronger business than anticipated, making the $9.4 billion deal more appealing.

"I don't think I appreciated the quality of development opportunities that the Caesars organization pursued," including pending deals in England, California and New York, Loveman said during a conference call with investors.

The Caesars brand "stands alone internationally as the preeminent brand in our industry," he said. "There is no market where there is a lack of interest in the Caesars brand."

Caesars Palace is reaping the benefits of recent upgrades and has "tremendous potential going forward," he added.

"We've gotten access to that business at a very compelling time," he said.

On top of that, both companies have sold off casinos at high prices in advance of the transaction.

Harrah's today reported $77 million in earnings in the fourth quarter or 68 cents per share, up from $35.4 million for the same quarter of last year or 32 cents per share.

Excluding certain charges, the company reported profit of 72 cents per share. That was about five cents above what Wall Street analysts expected the company to earn in the fourth quarter.

Revenue in the fourth quarter rose 25 percent to $1.19 billion. Revenue at properties open at least a year rose 7.5 percent in the quarter.

The company said earnings before interest, taxes, depreciation and amortization, a key indicator of casino performance, rose 31 percent to $288.7 million. That figure also excludes project opening costs, corporate expenses, costs related to the acquisition of Caesars Entertainment.

For the full year of 2004, revenue rose 15 percent to $4.6 billion and revenue at properties open at least a year rose 6.5 percent.

Some analysts said the company's Harrah's Las Vegas and Rio casinos in Las Vegas performed better than expected.

Revenue at Harrah's Las Vegas rose 12 percent in the fourth quarter and revenue at the Rio rose 10 percent. Including the Harrah's casino in Laughlin, revenue at all three Southern Nevada properties rose 17 percent to $265.5 million.

Earnings before interest, taxes, depreciation and amortization rose 26 percent at Harrah's Las Vegas and 31 percent at the Rio in the fourth quarter.

Customers staying at the three Southern Nevada properties from other parts of the country rose 23 percent in the fourth quarter compared with the prior year, executives said.

"We have more demand than we can handle at present," Harrah's Chief Operating Officer Tim Wilmott said.

Revenue fell 4 percent in Atlantic City in part because of the Atlantic City strike by members of the UNITE HERE union of housekeepers, food servers and other key service jobs. But revenue more than doubled in the company's North Central region with the purchase of the Horseshoe Hammond casino and an expansion at Harrah's St. Louis.

Harrah's said the July purchase of the Horseshoe casinos in Indiana, Louisiana and Mississippi from casino boss Jack Binion added about 4 cents to the company's fourth quarter earnings.

More customers are spending their time and money at Harrah's properties across the country, Wilmott said.

Customers spent 44 percent of their gambling budgets at Harrah's casinos in 2004, up one percent from 2003. Harrah's customers who gambled at other Harrah's properties outside of their home market spent $1.4 billion last year, up 18 percent from the prior year. Gambling using the company's Total Rewards club card rose 12 percent in 2004 compared with a year ago.

Loveman said Harrah's is poised to bid on several large casino projects in Great Britain in spite of ending a deal to develop smaller casinos with a U.K. bingo operator. Legislation allowing the larger casinos is expected to pass over the next couple of months, he said.

The company also is eyeing Asia for future casinos and potential deals, including Singapore and Macau, he said.

"We expect liberalization in many areas in Asia," he said.

Both Harrah's and Caesars also are bidding on casino projects in Pennsylvania. Loveman said Harrah's expects to open a race track casino by 2006 at Chester Downs near Philadelphia, where the company also anticipates developing a Caesars casino. Both projects would be part-owned by the company, he said.

Loveman said he is "optimistic" that the Federal Trade Commission will complete its review of the Caesars deal by March and that Nevada and New Jersey regulators will consider the deal following FTC action. Starting in March, the company will seek approvals in other states, he said.

In other news, Harrah's said Tuesday it had agreed with bankers to increase its credit line by $1.5 billion, with an option of increasing the loan by another $1 billion, to assist in the Caesars purchase. The company's borrowing capacity would be raised to $5 billion with the option.

The deal also calls for bankers to lower the company's interest rate by about .23 percent.

Harrah's shares rose $1.63 per share to $65.44 in midday trading today.