Park Place sees gradual rebound for LV resorts

David Strow

Tuesday, Jan. 29, 2002 | 11:14 a.m.

Gambling giant Park Place Entertainment Corp. of Las Vegas today posted a loss of $16 million in the fourth quarter of 2001, as cash flow plunged at the company's Strip casinos after Sept. 11.

Park Place posted a loss of 5 cents per share, in line with analyst expectations for the quarter. In the year-ago period, the company lost $7 million, or 2 cents per share; it broke even in the year-ago quarter before one-time charges.

"As the results show, by any measure we had a challenging fourth-quarter and a challenging year," Park Place Chief Executive Tom Gallagher told investors in a conference call this morning. "I think the reasons for that are fairly obvious."

Park Place posted a cash loss, before non-recurring items, of 1 cent per share, compared to cash earnings of 4 cents per share in the year-ago quarter.

During the quarter ending March 31, Chief Financial Officer Scott LaPorta told investors to expect earnings of 7 to 9 cents per share, "reflecting a modest recovery in Las Vegas." Still, this is below the 11 cents per share analysts had been projecting for the first quarter.

Park Place stock was down 24 cents to $9.91 this morning.

Revenues increased 3 percent to $1.11 billion, but cash flow was down 19 percent to $194 million.

Analyst Jason Ader of Bear Stearns called the results "less than stellar."

"It would appear Park Place was unable to reduce costs as quickly as we anticipated, given the significant erosion in (cash flow profit) margin and only a 5.4 percent decline in revenues (from the Western region)," Ader wrote in a research note this morning.

The quarter presented two starkly different pictures for the Las Vegas-based casino giant. Park Place-owned casinos in Atlantic City, Mississippi and Indiana all not only held their ground during the quarter, but reported cash flow increases. But Park Place's properties in Nevada suffered badly in the post-Sept. 11 tourism slowdown; cash flow in Nevada was down 42 percent to $60 million for the quarter.

"We've talked a fair amount in the past about the geographic diversity of our company ... I think the fourth quarter demonstrated how important our asset diversity is," Gallagher said.

Paris Las Vegas and Bally's Las Vegas reported $27 million in fourth-quarter cash flow, down 33 percent; the company blamed a drop in convention business after Sept. 11. At Caesars Palace cash flow was down 24 percent to $19 million, which the company attributed to "an unwillingness to travel" among Caesars' international high-end customers.

At the Flamingo Las Vegas, cash flow was cut in half to $14 million.

Park Place's five other Nevada properties -- Las Vegas Hilton, Reno Hilton, Caesars Tahoe, Flamingo Laughlin and the Flamingo Reno -- reported no cash flow at all during the quarter, compared to $11 million in the year-ago quarter. Results from the five properties were not broken out by Park Place.

"In Nevada, we've seen some positive signs," Gallagher said. "Convention business is looking good for the remainder of the first quarter, and we've seen positive trends in casino volumes and (room rates), but still below 9/11."

As evidence of this recovery, Park Place pointed at its cash flow trends. In October, cash flow was down 25 percent, but was down only 16 percent in December.

"The key is that improvement off the bottom is a lot better and a lot quicker than people predicted two or three months ago," said Andrew Zarnett, gaming analyst with Deutsche Banc Alex. Brown.

Gallagher declined to predict when the company's Strip properties would fully recover, "but I can say visitation each month is getting better."

The picture was far brighter in Atlantic City, where increased drive-in business led to $86 million in cash flow, a 16 percent increase over the year-ago period. Two of Park Place's Atlantic City casinos -- Bally's Atlantic City and Caesars Atlantic City -- posted higher cash flow than any Strip property owned by the company.

In the mid-South, which includes casinos in Mississippi and Indiana, cash flow rose 4 percent to $51 million. Cash flow fell at Grand Biloxi and Grand Gulfport, both in Mississippi, but rose 45 percent at an expanded Caesars Indiana.

Despite the difficult quarter, Ader said there was reason for optimism.

"Given the company's strong brand portfolio, key locations in several markets, geographic diversity of cash flows, low cost of capital and significant free cash flow, we believe shares are currently undervalued, although we recognize that the near-term risk to the story could continue to limit upside potential until visibility improves," Ader wrote.

The cash flow decline in Nevada reported by Park Place does not bode well for MGM MIRAGE, which reports earnings in just two days. MGM MIRAGE is far more concentrated in Las Vegas than Park Place.

"It should be difficult (for MGM MIRAGE), but they should do better than Park Place did," Zarnett said. "Their properties cater to a little more high-end customer, one that isn't as impacted from the recession."