Earnings mixed for Harrah’s

David Strow

Wednesday, Oct. 17, 2001 | 10:48 a.m.

While business is down in Las Vegas and Atlantic City, Harrah's Entertainment Inc. said today that a strong bounce back at its Midwestern riverboat casinos and its newest acquisition helped ease the pain of the post-Sept. 11 downturn.

Harrah's this morning reported net income of $61.9 million, or 54 cents per share, for the third quarter, down from a year-ago performance of $72 million, or 61 cents per share. Hardest hit were Harrah's properties in Nevada, which recorded a combined 20 percent dip in cash flow on the quarter. Operating profit was $193.5 million, down 6 percent.

But Harrah's actually reported improved results by other measures. When one-time charges -- including a $13 million write-off at the Rio -- were factored out, net income was $76.6 million, or 67 cents per share. This was an increase of 3 percent over the year-ago quarter, and 5 percent on a per-share basis.

Revenues for the quarter cracked the $1 billion mark for the first time; at $1.05 billion, revenues were up 11 percent. Cash flow was $269 million, an increase of $1.27 million.

A big reason for these gains was the $625 million buyout of Harveys Casino Resorts two months ago. Without the three Harveys casinos, revenues would have been flat and cash flow would have decreased 3 percent.

Considering the circumstances, Harrah's officials said the results were encouraging.

"Our strategy has now been tested in the bad times, and we outperformed the market in good times and bad. Our revenues are down less, we've recovered more quickly, and we've had less dislocation than our competitors," said Chairman and Chief Executive Phil Satre.

Seven Harrah's properties recorded record levels of cash flow during the quarter, Harrah's President Gary Loveman said.

The Rio, which has been a poor performer for Harrah's in recent years, posted negative cash flow of $4.9 million, compared to positive cash flow of $10.1 million a year ago. The company took $13 million in charges because of the Rio's shift away from the international high-end business.

Prior to the citywide slowdown, "the estimates coming from management just before the 11th indicated we'd have had the best month at the Rio (in September) in two years," Loveman said.

Harrah's Las Vegas also was weakened during the quarter. It posted $24.9 million in cash flow, down 14 percent from the year-ago period.

"One measure (of strength in Las Vegas) is the absence of layoffs at our properties, while our competitors have experienced thousands of layoffs up and down the (Strip)," Loveman said. "We're putting gaming customers to bed in these hotels (Harrah's Las Vegas and the Rio) to a much greater degree than our competitors in Las Vegas."

The company said its Nevada properties are still operating below Sept. 11 levels. Overall cash flow at Harrah's Western properties was down 20 percent to $59.2 million.

The situation in the Midwest and East was more encouraging for the company. In the Midwest, Harrah's said business appears to have recovered completely. The Midwestern casinos reported $128.2 million in cash flow, up 21 percent from the year-ago period. Benefits from expansion projects and the addition of two Harveys casinos during the quarter aided Harrah's results there.

Harrah's also saw a downturn in Atlantic City, though not as severe as the one seen in the West. The two Atlantic City casinos reported $71.5 million in cash flow, down 5.5 percent from the year-ago period.

Aztar Corp. of Phoenix, owner of the Tropicana hotel-casino on the Strip, also reported strong third-quarter earnings this morning.

Aztar reported net income of $17.8 million, or 46 cents per share, compared to net income of $14.6 million, or 34 cents per share, in the year-ago period.

The Tropicana on the Strip saw cash flow decline 20 percent to $5.6 million. But this was more than offset by the Tropicana Atlantic City, which reported a 12 percent increase in cash flow.