Harrah’s reports lower earnings

David Strow

Wednesday, Oct. 17, 2001 | 9:56 a.m.

A post-Sept. 11 downturn in business and problems at the Rio hotel-casino in Las Vegas combined to send Harrah's Entertainment Inc. earnings down 14 percent in the quarter ending Sept. 30.

Harrah's this morning reported net income of $61.9 million, or 54 cents per share, for its 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.

When one-time charges 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 flat at $269 million.

The company benefitted from 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.

But Harrah's officials insisted 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. Harrah's also saw a downturn in Atlantic City, though not as severe as the one seen in the West.

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.