Isle of Capri downgraded by Merrill despite higher earnings report

Timothy R. Brown

Wednesday, Nov. 22, 2000 | 10:54 a.m.

BILOXI, Miss. -- Recent acquisitions helped boost second quarter earnings for Isle of Capri Casinos Inc. despite mixed results from existing properties.

Isle of Capri earned $9.6 million, or 30 cents per share, compared with $6.6 million, or 26 cents per share, in the same period a year ago. The results beat analysts' estimates of 26 cents per share, according to First Call/Thompson Financial.

Jack Gallaway, president and chief operating officer for the Isle, announced the second quarter results Monday during a teleconference.

"It was a good quarter. We are real pleased with how it came out," Gallaway said. "During the quarter we added two properties to our portfolio, Las Vegas and Davenport (Iowa). We started major renovation work in Kansas City and Lula, which frankly hurt us for the short term."

Isle's strategy of acquiring other properties and rebranding it with the "Isle Style" treatment has paid off, Gallaway said.

Investors, however, did not respond well to the quarterly results as the Isle of Capri's stock finished Tuesday at $9.56, down 63 cents. Merrill Lynch downgraded Isle's stock from buy to neutral.

Marc Falcone, an analyst for Bear Stearns in New York, said Tuesday the second quarter "results were in line with our expectations."

But Falcone said he is a "little bit more cautious" about Isle of Capri's estimates for the year. He cited competition in certain markets for the lowered expectations.

Revenue was up from $141 million last year to $231 million this second quarter. The second quarter results were helped by the inclusion of new Isle properties in Las Vegas and Davenport, Iowa.

The Lady Luck Las Vegas casino, acquired in September, saw $6 million in revenue, while the gaming facility in Davenport had $3.7 million.

But Mississippi properties saw mixed results.

Isle of Capri in Biloxi fell from $21.8 million last year to $21.2 million this second quarter, while the Vicksburg casino increased from $15.4 million to $16.7 this past quarter.

Tunica had the biggest loss in revenue. Last year, Tunica had 9.8 million in revenue, but this second quarter's revenue fell to $7.1.

Isle's Lula casino also posted a decline in revenue, falling from $25.2 million in 1999 to $22.2 million this year.

Despite the mixed results, Dennis Forst, managing director at McDonald Investments, said in an interview this week that the future looks bright for Isle of Capri.

"Isle of Capri probably owns more riverboat gaming operations than anyone in the business," Forst said in an interview with The Wall Street Transcript, a weekly investment publication.

"The company has properties in three major states: Mississippi, Missouri and Iowa. Isle will probably do $1 billion in revenue. It is the biggest company that no one has ever heard of."

Forst was unavailable for comment Tuesday.

Isle's Louisiana properties also generated mixed results for the company. Its casino in Lake Charles had quarterly revenue of $45 million, compared with $43.6 million in the same period a year ago.

Isle's Bossier City casino had revenue of $37.2 million, slightly down from last year's $37.8 million in revenue.