Harrah’s profit indicates good times for LV Strip

Gary Thompson

Wednesday, April 21, 1999 | 12:17 p.m.

Harrah's Entertainment Inc. today said strong performances in all market segments and the acquisition of the Rio helped it record record revenue, cash flow and net income for the first quarter.

The company, which operates 18 hotel-casinos in the United States and Australia, said first-quarter net income rose to $34.1 million, or 27 cents a share, from $23.2 million, or 25 cents a share, in the 1998 first quarter.

Before a $3.2 million, or 3-cent-share extraordinary charge related to refinancing debt to take advantage of lower interest rates, net income was $37.3 million, or 30 cents a share, in the latest quarter.

Revenue soared 72 percent to $711.7 million from $414.4 million, due in large part to the acquisitions last year of Rio and Showboat Inc.

Harrah's stock was up 4.6 percent, or $1, to $22.625 a share, in midday trading today. A group of 15 gaming analysts had estimated first-quarter net would be 26 cents a share.

Prudential Securities analyst Joe Coccimiglio, one of the few to predict an upturn in gaming stocks as early as last fall, said the results were expected.

"If you went back to the fall and asked 100 buy-side analysts what the Las Vegas room rate expectations were, you'd get a negative 10 percent," he said.

"But as the first large company to report Las Vegas results, Harrah's has confirmed our expectations. It's clear Bellagio and Mandalay Bay have lifted visitor demand for, and room rates in, Las Vegas.

"We do a room-rate survey 30 days ahead and it was telling us room rates were strong, with March one of the best months ever.

"Right now, the casino stocks are back close to their historic cash-flow multiples, with the average around nine," he said. "What's interesting is that as the gaming industry evolves more and more toward entertainment, they are moving toward an industry that's trading at 16 times cash flow.

"If gaming closes the gap with pure entertainment, there could be another big rally in gaming stocks," Coccimiglio said.

"I think the most likely outcome is that gaming stocks will become a sort of hybrid of the entertainment industry, which should attract investors who today still shy away from an industry some perceive as sinful. Some of those investors would be stunned to walked into the showroom at Bellagio or the new one being built at the Rio."

Coccimiglio said he expects the other new hotels opening this to have some short-term impact on financial results.

"The opening of the Venetian is occurring in what is traditionally a seasonally softer period, while Paris-Las Vegas opens in September, also a relatively soft month," he said. "But October and November are usually very good and the Millennium celebrations occur soon after. My sense is we may have a weak third quarter and a stronger fourth quarter."

Meanwhile, Harrah's said consolidated cash flow jumped 75 percent to $167.2 million in the latest quarter from $95.4 million a year ago. Cash flow, or earnings before interest, taxes, depreciation and amortization, is a measure of a company's financial stability.

"Showboat and Rio have been terrific additions, but even without them, Harrah's experienced a 10 percent increase in revenue and a 9 percent rise in cash flow over the prior year," said Harrah's Chairman Phil Satre.

The Rio acquisition and record first-quarter revenue at Harrah's Las Vegas and Harrah's Laughlin led the Western region to post revenue and cash-flow increases of 93 percent and 137 percent, respectively, over first quarter of 1998, Satre said.

Rio's revenue rose 25 percent from last year, while its cash flow rose 19 percent to a quarterly record, sparked by increased room, food-and-beverage and gaming revenue.

Cash flow at Harrah's Las Vegas rose 18 percent due to more effective marketing, Satre said, while Laughlin's cash flow was up 17 percent.

Harrah's Northern Nevada operations also had a strong first quarter, as fewer weather problems impacted the Lake Tahoe and Reno properties.

Satre said the growth in Las Vegas was "particularly impressive at a time when that market is adjusting to considerable new competitive supply."

Harrah's Atlantic City region, which includes the Showboat property acquired last June, posted record revenue and cash flow.

Strong performances in Harrah's Central region casinos led by record revenues in North Kansas City and St. Louis, plus the addition of East Chicago, resulted in significant revenue and cash-flow growth overall for the region, Satre said.

The company's three Indian casinos -- Harrah's Ak Chin, Harrah's Cherokee and Harrah's Prairie Band -- all continued strong performances in the quarter, he said.

Last week, Harrah's announced its intent to sell its interests in the Star City Casino in Sydney, Australia. The transaction is expected to close in the latter half of 1999.

The company is moving its headquarters to Las Vegas from Memphis later this year, and incurred about $3 million in separation expenses during the first quarter for executives and other employees who won't stay with the company.