Harrah’s reveals strong fourth-quarter earnings

David Strow

Wednesday, Jan. 16, 2002 | 11:01 a.m.

Confirming expectations of a strong fourth quarter, Harrah's Entertainment Inc. announced Tuesday it will handily beat analyst expectations for the quarter ending Dec. 31.

The news sent Harrah's stock up more than 4 percent this morning to a 52-week high.

The Las Vegas-based casino giant told investors it expects to report earnings of 44 cents to 48 cents per share for the quarter, excluding one-time gains. Nonrecurring items will push actual earnings per share up to 47 cents to 51 cents per share, Harrah's said, and cash flow is expected to increase about 25 percent.

Analysts had expected the company to earn 35 cents per share. In the fourth quarter of 2000, Harrah's reported earnings of 20 cents per share before one-time items. The company lost $1.41 per share in the year-ago quarter after restructuring charges.

"As you can well imagine, this is a very pleasant way for my colleagues and I to kick off the new year," Harrah's Chairman and Chief Executive Phil Satre said.

The company will release its earnings on Feb. 6.

Harrah's attributed the powerful quarter to strong performances at its properties across the country, particularly in Atlantic City and the Midwest. Mild winter weather, low interest rates, completed expansions at several casinos and the acquisition of Harveys Casino Resorts all helped boost the company's earnings, Harrah's said.

Harrah's executives also attributed part of the gains to an aggressive marketing strategy, revolving around its "Total Rewards" customer loyalty program, that was launched when business began slowing in mid-2001.

"Our strategy has been working," Satre said. "We've been seeing retail increases across the market."

The earnings also showed the benefit of a "deliberate diversification strategy," Satre said.

"This is (a result) of our deliberate planning to have our eggs in a number of baskets," Satre said.

Wall Street had widely expected Harrah's would beat expectations, after Atlantic City and Midwestern riverboat states reported very strong win numbers for December. At least four firms -- Merrill Lynch, Bear Stearns, CIBC World Markets and UBS Warburg -- had raised their earnings estimates for Harrah's in the last five days. Both Merrill Lynch and Bear Stearns had already raised their estimates in mid-December.

"It's not surprising, because the riverboat markets were so strong," analyst Brian Egger of CS First Boston said. "Clearly in the Midwest they've had results above expectations for most of the quarter."

But Harrah's fourth quarter will come in at least 10 percent higher than the highest revised earnings estimate.

Even the Rio near the Las Vegas Strip, which had been Harrah's Achilles' heel during the past two years, performed well during the quarter. Cash flow at the Rio rose nearly 50 percent over the year-ago quarter's $11.3 million, Harrah's said. Gary Loveman, Harrah's president, attributed the Rio's gains to the shift away from international high-end business, as well as "marketing and operational improvements."

And the $265 million Palms hotel-casino, which opened across Flamingo Road from the Rio on Nov. 15, "has had no significant impact (on the Rio), one way or the other," Loveman said.

Improvements at the Rio were offset by declines at the remainder of Harrah's Nevada properties, the company said. Harrah's Las Vegas and Harrah's Laughlin were hurt by "more budget-conscious travelers visiting those properties after Sept. 11," Loveman said, and saw cash flow decline about 16 percent. Northern Nevada properties were hurt by a weakening Northern California economy and poor weather over the holidays.

Harrah's stock finished Tuesday at $39.23, up $1.12. Harrah's made its pre-announcement 30 minutes before the markets closed, and the stock gained 25 cents during the last minutes of trading. In early trading this morning, the stock rose an additional $1.77 to $41, breaking the previous 52-week high of $40.15. The stock is now up more than 70 percent from its post-Sept. 11 lows.

Still, some analysts cautioned investors not to get too enthusiastic.

"We would remind investors that the shares of the majority of the regional/riverboat operators are approaching fairly rich valuations and highs not seen in nearly five years," wrote gaming analyst Jason Ader of Bear Stearns. "As such, rather than chase these names at current valuations, we would prefer to be buyers on any weakness."