Wednesday, April 18, 2001 | 11:06 a.m.
Harrah's Entertainment Inc. and Aztar Corp. beat analysts' profit expectations today as the first-quarter earnings reporting season got off to a strong start for casino operators.
Las Vegas-based Harrah's rebounded from a disappointing fourth quarter, posting net income of $44.1 million, or 38 cents per diluted share for the quarter ending March 31. That's an increase of 43 percent on a net income basis over the first quarter of 2000. Analysts had expected 37 cents per share.
Meanwhile, Phoenix-based Aztar -- owner of the Tropicana on the Las Vegas Strip -- posted net income of $11.4 million for the quarter ending March 29, an increase of 4 percent over the year-ago quarter. Aztar earned 28 cents per share, besting the consensus expectation of 24 cents.
What stood out for both companies was the impressive performance of their Las Vegas holdings. Despite gloomy predictions of a slowdown, the Rio, Harrah's Las Vegas and the Tropicana all posted solid gains in cash flow during the first quarter.
"We all knew the first quarter for Las Vegas was going to be reasonably good," said David Anders, gaming analyst with Merrill Lynch. "My suspicion is that the first quarter should be reasonably strong for all Las Vegas operators."
But Anders indicated his outlook is cautious for the rest of the year.
For Harrah's, the biggest factor in improved earnings was the disappearance of a triple whammy that bedeviled Harrah's throughout 2000. The Rio showed strong improvement over 2000, and Harrah's no longer recorded losses from its New Orleans casino or National Airlines; both were in bankruptcy protection during the quarter. Meanwhile, Harrah's reported strong growth at its Harrah's-branded properties, where "same-store" sales growth rose an average of 5.6 percent during the quarter.
"The year is off to a great start for us," Harrah's Chairman and Chief Executive Phil Satre said on a morning conference call with investors. "We are quite optimistic about the future earnings (growth potential) of our business, and we are poised for excellent future performance."
Harrah's revenues reached $899.5 million for the quarter, an increase of 15 percent over the year-ago quarter, while cash flow rose 22.6 percent to $235.4 million. Both were records for the company.
The company's performance in Nevada, in the words of Chief Operating Officer Gary Loveman, was "schizophrenic." The Rio bounced back strongly, reporting cash flow of $22.7 million, a 220 percent increase over the year-ago quarter. Harrah's casinos in Las Vegas and Laughlin also continued their growth, posting $31.6 million in cash flow, up 17.5 percent.
"I'm shocked" by the strong Rio performance, said William Schmitt, gaming analyst with CIBC World Markets.
"If they can get this up to the $120 (million per year cash flow) range, that would be a strong testament to their ability to reposition that property and operate a facility a little outside their core strength. It's egg on their face right now, or has been."
Loveman attributed the Rio's vastly improved performance to a big improvement in table game hold, near-record volumes of table game play and cost-cutting initiatives at the property.
"I'm not satisfied with $23 million (in cash flow), but it's much better than where we were last year," Loveman said. "There are many opportunities to continue to improve performance at the Rio."
But a variety of factors -- poor weather, the California energy crisis, the decline of the stock market and the meltdown of Silicon Valley among them -- were blamed as possible causes of a 31 percent dip in cash flow from Harrah's Reno and Lake Tahoe properties. The two posted cash flow of $8 million for the quarter, though Loveman said the properties are starting to show signs of a rebound.
Elsewhere, Harrah's performance was generally strong. The most impressive gains came in the midwest, where Harrah's saw cash flow soar more than 35 percent to $112.9 million. The acquisition of Players International last year, combined with new marketing and cost-control efforts pushed cash flow up 49 percent at the company's Kansas City and St. Louis properties. Cash flow rose 3.2 percent at the company's two Chicago-area properties to a new record, but declined an unspecified amount in Shreveport, La.
Atlantic City was a mixed bag; Harrah's Atlantic City saw cash flow rise 9 percent to $32.1 million, while Showboat Atlantic City offset most of that gain with a 10 percent dip in cash flow to $18.3 million. Harrah's blamed poor winter weather conditions and disruption from construction at the Showboat.
Aztar also had a tough time because of poor weather in Atlantic City, but was able to offset it with gains elsewhere.
Tropicana Atlantic City is Aztar's biggest cash producer, and cash flow there fell 5 percent to $23.4 million. But the Tropicana on the Strip more than offset these declines, as cash flow roared ahead 27 percent to $7.6 million.
The Tropicana Las Vegas' revenues rose 7.6 percent, while operating income nearly tripled to $3.2 million. Occupancy reached 96.9 percent during the quarter, up 1.7 percentage points.
Aztar's property in Evansville, Ind., posted $9.5 million in cash flow, up 2 percent, while its Caruthersville, Miss., property reported $1.3 million in cash flow, up 18 percent. Cash flow from the Ramada Express in Laughlin was flat at $8.2 million.
Expect more of the same in coming days from other gaming operators, Schmitt said.
"Right across the board, you're more likely to see surprises on the upside," Schmitt said. "So far ... the slowing economy doesn't appear to be affecting (gaming) volumes, particularly in the secondary markets. Harrah's and Aztar are pretty well positioned there. But those companies with exposure in Vegas, I'm still a little bearish on."
In trading this morning, Harrah's stock advanced 5 percent to $33.61 and Aztar improved 3.5 percent to $11.49 on their earnings reports.
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