Park Place beats profit estimates

David Strow

Tuesday, May 2, 2000 | 11:17 a.m.

Park Place Entertainment Corp. of Las Vegas today reported a 16 percent increase in quarterly net income, growth primarily caused by its recent acquisition of Caesars World Inc. and a powerful quarter in Atlantic City.

Park Place posted net income of $52 million, or 17 cents per share, for the quarter ending March 31. That edged slightly ahead of consensus estimates of 16 cents per share for the quarter.

The quarter was Park Place's first since the $3 billion acquisition of Caesars World closed in December 1999.

Companywide cash flow, on a pro-forma basis assuming Caesars World was part of Park Place in the 1999 quarter, rose from $276 million to $327 million. Revenue of $1.23 billion was up an absolute 65 percent, no pro-forma number was disclosed for revenue or net income.

Park Place used $142 million of this cash flow to pay down debt and repurchase 4 million shares of stock at an average price of $10.25 per share during the quarter.

"We're on pace to earn $2 per share in free cash flow this year, which is an interesting statistic, given our $13 per share stock price," said Scott LaPorta, chief financial officer.

The Caesars casinos were the biggest new contributors, adding $97 million in new cash flow over the year-ago period. Cash flow at the Caesars properties rose 16 percent since last year -- something company officials attributed to changes in marketing and slot layout strategies.

"We are clearly on track for $50 million in synergies (from the Caesars acquisition in 2000)," said Arthur Goldberg, chief executive of Park Place. "We will go a little over the $50 million."

The largest jump was posted by Caesars Atlantic City, where cash flow rose 39 percent to $32 million. By comparison, cash flow increased 6 percent at Caesars Palace in Las Vegas, to $35 million.

Just as significant as the increased cash flow was the overall boost the Caesars properties gave to room rates, said Robin Farley, gaming analyst with Deutsche Banc Alex. Brown. Average daily room rates in Las Vegas rose 16 percent to $84.

"Adding the Caesars brand boosted company room rates pretty nicely," Farley said.

To capitalize on the Caesars brand, Park Place plans to spend $70 million on Caesars Palace, primarily in upgrading and expanding its high-end gaming area, LaPorta said. An additional $30 million will be spent on its Caesars Indiana riverboat, located near Louisville, on the addition of a 500-room hotel at its dock site.

A second significant contributor was Paris Las Vegas. The combined Paris Las Vegas-Bally's Las Vegas complex generated $58 million in cash flow, up $34 million from the first quarter of 1999.

The company also saw powerful cash flow growth in Atlantic City. Heavy increases in slot play and table game play boosted cash flow by 15 percent at Bally's Park Place, to $38 million. At the Atlantic City Hilton, cash flow hit $14 million, up 133 percent from the year-ago quarter.

These numbers were partly offset by declines at the Las Vegas Hilton and Grand Biloxi. The Las Vegas Hilton's cash flow plunged 33 percent, to $18 million, while Grand Biloxi was off 20 percent to $16 million.

The Grand Biloxi drop was the result of increased competition on the Mississippi Gulf Coast, company officials said. But they maintained the decline at the Las Vegas Hilton was merely the result of an unusually strong quarter in 1999, not a weak quarter in 2000.

It's been rumored for some time that Park Place would consider selling the Las Vegas Hilton, but Goldberg made no mention of this during a conference call with analysts.

"We're happy with our assets and how they're positioned in their different markets," Goldberg said when asked if Park Place was considering selling any assets. "We'll pretty much operate those assets as they are (operated) today."

As far as expansion, Goldberg targeted suburban Chicago as the next possible stop on Park Place's acquisition run.

"We're still looking at that market (Chicago)," Goldberg said. "We really like the numbers out of Indiana. We'd like to have some more assets in that area, particularly in Illinois."

And Goldberg, a long-time rival of Mirage Resorts Inc. Chairman and Chief Executive Steve Wynn, said plans for a Strip monorail may have an easier time proceeding with MGM Grand Inc. in charge of the Mirage assets. Wynn has been an opponent of the monorail proposals.

"We have more friendly neighbors on the west side of the Strip now," Goldberg said. "We've had a close relationship with MGM over the years. Both Terry (Lanni, MGM Grand chairman) and Kirk (Kerkorian, MGM Grand controlling shareholder) and I are fairly friendly.

"(The monorail) is something I think should be considered and I think will be considered. A combination of Mirage and MGM should help bring that about."