Park Place boosts cross-marketing of casinos on the Las Vegas Strip

David Strow

Tuesday, April 24, 2001 | 11:19 a.m.

Park Place Entertainment Corp. of Las Vegas today reported a sizable decline in earnings for the quarter ending March 31 -- but not as much of a dip as analysts expected.

The casino giant, the nation's largest, reported three-month net income of $45 million, or 15 cents per share. Net income was down 13.5 percent from the year-ago period, and 12 percent on a per-share basis.

Still, Park Place handily beat the Wall Street consensus estimate of 11 cents per share. As a result, Park Place stock gained 48 cents this morning to trade at $11.18.

Revenues for the quarter were off 1 percent to $1.2 billion, while cash flow declined 3.6 percent to $315 million.

Park Place Chief Executive Tom Gallagher urged investors and analysts this morning to "look at the bigger picture" at his company, and took a decidedly bullish outlook on the results. Scott LaPorta, chief financial officer, then told investors the company was "comfortable" with analyst expectations of 17 cents to 18 cents per share for the quarter ending June 30.

"We had a very good quarter, given where we finished last year," Gallagher said.

Gallagher said he plans to lay out a detailed investment and marketing strategy for Park Place at the company's annual shareholder meeting, scheduled for May 11 at Paris Las Vegas.

The results were substantially improved over the loss of $7 million Park Place posted in the quarter ending Dec. 31. Still, signs of slowing were evident, as all but three Park Place properties reported cash flow declines on the quarter. Calendar quirks, high energy costs and poor weather conditions in Atlantic City were all blamed.

In Nevada, Park Place's cash flow fell more than 4 percent to $152 million, despite increases in slot and table play, as well as a 7 percent increase in room revenues. Caesars Palace, Flamingo Las Vegas and the Las Vegas Hilton each posted cash flow declines of 11 to 12 percent.

At Caesars, Park Place blamed the shift of most of the New Year's weekend into the fourth quarter of 2000 -- as opposed to the first quarter of 2001 -- for some of the decline. Park Place said that shift cost Caesars about $7 million in cash flow for the quarter; the property reported $31 million in cash flow, off 11.5 percent.

Park Place currently plans to add an 800-room tower to the property. That drew a challenge from one investor, who noted that Mandalay Resort Group had seen poor returns from a similar expansion at Luxor. Park Place officials responded that the property had more than enough casino space to justify the expansion.

"This is a very good use of capital. I just want to drive that home," Gallagher responded. "This is the premier location in town, it's a property that's badly under-roomed. It's absolutely the right project, and it drives exactly the kind of returns that have distinguished our projects from others in the marketplace."

The Las Vegas Hilton's 11 percent dip was not surprising, given the property's struggles in the wake of a broken sales deal to Los Angeles investor Ed Roski Jr. However, the $16 million in cash flow was a big improvement over recent quarters -- over the preceding six months, the Las Vegas Hilton recorded just $1 million in cash flow.

Park Place is repositioning the property as a convention hotel, rather than the anchor of its high-end play. By moving most of its high-end play out of the Hilton, table drop at the property is down 80 percent from the year-ago quarter, LaPorta said.

Bally's Las Vegas and the adjacent Paris Las Vegas were a bright spot for Park Place, as the sister properties posted cash flow of $59 million, up 2 percent.

"We had to do some fine-tuning at Paris ... this is good evidence we're on track," Gallagher said.

Park Place laid out the framework of its strategy to boost Las Vegas revenues by cross-marketing its four Strip properties. A key step taken recently was the introduction of "cross-charging" at its Strip properties -- this allows guests to charge spending on food, beverage and entertainment at any Park Place property to their room, no matter where they're staying. Company officials also said they should be able to introduce a single, unified slot club card -- the "Universal Card" -- at Park Place's Las Vegas properties by year's end.

"It's clear we've only scratched the surface here because of the newness of our company," Gallagher said. "There's tremendous upside (from cross-marketing initiatives)."

Another booster to Nevada earnings was, surprisingly, Park Place's properties in Reno and Laughlin, which bucked the slowdown in those markets to post $17 million in cash flow, up 13 percent.

In Atlantic City, cash flow fell 2.4 percent to $82 million. Cost reduction efforts and increased slot play caused Caesars Atlantic City to post $33 million in cash flow, up 6 percent, but this was offset by Park Place's other two properties in town; Bally's Atlantic City reported $35 million in cash flow, down 8 percent, while the Atlantic City Hilton reported $12 million in cash flow, down 14 percent. A combination of poor hold, winter weather and higher energy costs was blamed.

The South and Midwest were the brightest spots during the quarter. Cash flow at the big Caesars Indiana riverboat soared 36 percent to $15 million, the result of a big expansion there. Cash flows at Park Place's two Biloxi, Miss.-area casinos were essentially unchanged from last year, while Grand Tunica, Miss., was down 7 percent.

There has been speculation Park Place's voracious appetite for acquisition under its former chief executive, the late Arthur Goldberg, would diminish under Gallagher. Gallagher did his best to dispel that belief during the conference call.

"We expect consolidation in this industry will continue, especially if the industry softens," Gallagher said. "There will always be targets of opportunity for us."

One could be the Aladdin, a property in serious financial difficulty. Park Place owns a third of the Aladdin's mortgage notes, and it is widely speculated Park Place would attempt to take over the Strip property if it fell into bankruptcy.

"Because it's our next door neighbor (to Paris Las Vegas), we're going to watch it closely," Gallagher said. "'Any investment decision by us will be based strongly on return-on-investment analysis. If it doesn't fit our criteria, we're not going to chase it."

Park Place will also consider selling off or swapping assets, Gallagher said, though there are no plans to sell the Las Vegas Hilton.

"We're going to take a very hard look at the performance of all of our properties ... if we conclude we can't do that (generate acceptable returns from a property), we'll look at other solutions."