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Gaming Guru

Rod Smith

Hail Caesars' Healthy Profits

23 July 2004

LAS VEGAS -- Caesars Entertainment conquered its previous records with net income of $148 million, or 47 cents per diluted share, in the second quarter, up 261 percent from $41 million, or 14 cents a share, a year earlier.

"They had a good quarter. Las Vegas just drove the whole quarter for them. Las Vegas clearly was on fire for the second quarter," Eric Hausler, gaming analyst for Susquehanna Financial Group, said.

Caesars Entertainment's net income for the second quarter included a one-time gain of $87 million from the $286 million sale of the Las Vegas Hilton to Los Angeles-based Colony Capital. Even without the one-time gain, the company's profits would still have surged 46 percent.

The company's revenue rose 2 percent to $1.16 billion from $1.14 billion.

Also, the company's earnings before interest, taxes, depreciation and amortization, a key measure of profitability, increased to $292 million, up 6 percent from a year earlier.

In a conference call with analysts, Caesars Entertainment President Wally Barr said the company's four Strip properties led the earnings march.

He said Caesars Palace enjoyed a particular bump in business from the opening of its Roman Plaza, the landmark property's new entertainment and retail gateway at the intersection of the Strip and Flamingo Road.

The company's Western region enjoyed an increase in EBIDTA of 39 percent from $89 million to $124 million, while the Eastern region had a 16 percent drop in EBIDTA from $122 million to $102 million in the 2004 second quarter.

Ray Neidl, managing director of Blaylock and Partners, said in an investor advisory that the company's success in Las Vegas compared with other regions "confirms our belief that the Las Vegas Strip is where investors should be."

He said all three major Atlantic City properties suffered declines as the impact from the opening of the Borgata continued to be felt.

Neidl also said the mid-South region results were flat compared with last year, although international results picked up as performance in Nova Scotia, South Africa and Australia improved.

Goldman Sachs analyst Steve Kent said in an investor advisory that the reported strength in Las Vegas operations, which were partially offset by weak results in the Atlantic City market, was similar to the performance Harrah's Entertainment reported Wednesday.

"These results follow weak results from Harrah's' Atlantic City properties, and should raise questions as to the strategic rationale behind having more exposure to the Atlantic City market (with the pending merger of the two companies)," Kent said of Harrah's plans to buy Caesars for $9.4 billion. The deal, if it closes, will leave Harrah's in control of five of Atlantic City's 12 casinos.

Kent also said that while Caesars Entertainment's Las Vegas properties together did well, Caesars Palace's performance was clipped by lower baccarat volume and hold.

However, Barr said Caesars Entertainment will not be "getting out" of the high-roller business despite statements by Harrah's officials that this may be their long-term plans for the Strip resort.

Barr, however, said the performance of the high roller areas in Caesars Palace is normal for a competitive environment.

Neidl said although Caesars Entertainment beat Wall Street's consensus earnings estimates, the company's stock is likely to remain pinned by the pending merger with Harrah's Entertainment.

Caesars Entertainment closed Thursday at $14.89, down 6 cents, or 0.4 percent, on above-normal trading volume of 5.4 million shares. Barr said construction of the new 949-room hotel tower at Caesars Palace is on budget and on schedule to open next summer.