Harrah’s reports record earnings

David Strow

Wednesday, Feb. 9, 2000 | 11:13 a.m.

Harrah's Entertainment Inc. of Las Vegas announced record quarterly and annual earnings today, driven largely by growth at its older casinos.

The company's fourth-quarter earnings were slowed by Harrah's struggles in ramping up its new casino in New Orleans and some old-fashioned bad luck at the tables of the Rio in Las Vegas.

The casino operator reported earnings of $59.2 million or 45 cents per share for the quarter ending Dec. 31, up from $14.2 million or 14 cents per share in the year-ago quarter. For the year, earnings were $208.5 million or $1.62 per share, up from $102 million or $1 per share.

Earnings per share were partially driven up by the company's repurchase of 6.1 million shares in 1999.

Revenues for the quarter were $747.6 million, up 42 percent from the year-ago quarter, while annual revenues were $3 billion, up from $2 billion in 1998.

After factoring out extraordinary gains and losses -- including $200 million in revenues from the sale of its interest in an Australia casino -- Harrah's earned 30 cents per share for the quarter and $1.51 for the year.

That fell in line with analyst expectations. Harrah's earnings per share were driven down about 3 cents per share in the quarter by the well-publicized struggles of the company's new casino in New Orleans.

Harrah's also said revenues were reduced by about $10 million in the fourth quarter as the result of a lower-than-normal hold percentage at the Rio's tables. The hold percentage for the quarter was 16 percent, down from a historical average of 21 percent. The Rio was acquired Jan. 1, 1999.

Still, Harrah's found reasons to be optimistic.

"By all measures, 1999 was a breakthrough year for Harrah's Entertainment," said Chairman and Chief Executive Phil Satre. "We are now clearly differentiated from our competitors, with a nationally recognized brand that stands for quality, customer service and innovation."

The company's cash flow -- defined as earnings before interest, taxes, depreciation and amortization -- reached $152.7 million in the fourth quarter, a 38 percent increase. For the year, cash flow was up 54 percent, to $718.3 million.

Harrah's most significant new acquisition in 1999 was the Rio, though the company also experienced gains from the consolidation of its casino in East Chicago, Ill.

The Rio contributed $463.7 million in revenues in 1999, nearly half of the revenue growth experienced by Harrah's in 1999.

Far more significant for Harrah's, one analyst said, was the strong growth of the casinos Harrah's owned going into 1999. Revenues at these casinos increased 14 percent in 1999, while cash flow rose 21 percent.

"That's far more important as a reason to own this company than the issues putting pressure on the stock right now," such as the New Orleans performance, said Robin Farley, gaming analyst with Deutsche Bank Alex. Brown.

She attributed this performance largely to "Total Gold," Harrah's nationwide customer rewards, cross-property marketing program.

"It's not that they're growing revenues at the expense of profitability," Farley said. "They have a very effective marketing program."

The strongest performing market for the year was Nevada, which surpassed the Midwest as Harrah's largest market in 1999. Total revenues in Nevada were $1.15 billion, up from $642.6 million. Cash flow increased $122.5 million, to $270.4 million. Next was the Midwest, where revenues rose 45 percent to $1.02 billion, and cash flow increased 52 percent to $254.6 million.

In Atlantic City, Harrah's recorded revenues of $775.6 million from its two casinos, an increase of 31 percent. The company acquired the Showboat Atlantic City, its second Atlantic City casino, midway through 1998.

Harrah's traded at $20.50 at midday on Wall Street today, down 6 cents per share.