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Casino Earnings: Harrah's Posts Lower Profits

Harrah's Entertainment Tuesday reported net income for the second quarter of $76.7 million, down 11 percent compared with $86.1 million in the same quarter a year earlier.

"The quarter was not a disaster, but was messy, mostly due to higher taxes in Illinois, Indiana and Louisiana," said Joe Greff, gaming analyst with Fulcrum Global Partners, an independent Wall Street investment research firm.

"In our view, (earnings were) roughly in line or slightly below recently lowered expectations," he said.

Second-quarter adjusted earnings per share were 74 cents, down 3.9 percent from adjusted earnings per share of 77 cents a year earlier.

"It was a solid quarter for our company, but, frankly, not an inspiring one," Chief Executive Officer Gary Loveman said in a conference call with Wall Street analysts.

"The performance in (our) Southern Nevada, Atlantic City and New Orleans operations continued to be strong while certain other properties were below where I'd like them to be," he said.

"In some cases, (the earnings drop was) due to increased gaming taxes and Northern Nevada was impacted by bad weather," Loveman said.

Finally, "there were also a handful of properties that, frankly, did not execute as well as they should have," he said.

Cash flow, generally defined as earnings before interest taxes, depreciation and amortization, fell to $283.6 million, down marginally from $284.1 million a year earlier.

Company revenues increased to a second-quarter record of $1.1 million, up 6.9 percent from 1.0 million in the 2002 second quarter.

Overall, analysts were bullish on prospects for Harrah's in the coming year.

"During the second quarter, Harrah's made a lot of progress on implementing TR2, its next generation player loyalty program. As players get comfortable with the new rewards program, we anticipate some market share gains to be realized in coming quarters," said Deutsche Bank analyst Marc Falcone.

"In addition, Harrah's has begun to beta-test its own cashless slot system in several regional markets. As its Fast Cash (system) gains steam, it could gain some operating leverage in 2004," he said.

Harrah's shares were under pressure early Wednesday because of investor concern over the quality of earnings and the continued weakness in the Midwest, which is not being offset by other markets, said Goldman Sachs analyst Steve Kent.

However, after dropping sharply to $38.65 after the opening bell, Harrah's stock closed at $40.26, up 76 cents or 1.92 percent, on the day's trading.

Greff said the stock recovered nicely following the conference call because of positive speculation about a dividends policy.

During the conference call, Loveman declined to comment on the prospects for the company adopting a policy of paying dividends, saying the question would be raised at a meeting of the board of directors in Atlantic City.

"With a board meeting set for later this week, management (on today's conference call) indicated that it is seriously considering (issuing) dividends. Management did not commit one way or another, but we believe the comments regarding a dividend seem to be turning more serious," Greff said.

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