Nevada results boost Harrah’s Entertainment

By Liz Benston (contact)

Tuesday, April 22, 2003 | 11:11 a.m.

Harrah's Entertainment Inc. today said it boosted quarterly revenue and cash flow by cutting operating expenses and increasing its ranks of loyal slot player club members.

Including one-time charges, the company earned $81.1 million for the first quarter, or 74 cents per share. That compares to a loss of $6 million, or 5 cents per share, for the year-ago quarter.

Last year's loss included an impairment charge of $91.2 million to write down the value of acquisitions.

Revenue increased by 9.6 percent, to $1.1 billion.

On an operating profit basis, Harrah's earned 74 cents per share, beating analyst expectations of 67 cents.

Harrah's shares rose by about 5 percent, to $37.96, in afternoon trading today.

Some analysts today commended the company's ability to boost performance amid a sputtering economy, intensifying competition for tourist dollars and higher casino taxes that have hurt returns in some states.

Harrah's reported a "solid quarter in a tough environment, though it's not the growth story it used to be," analyst Joe Greff of Fulcrum Global Partners said.

Harrah's expects to improve performance this year when it introduces on June 17 an enhancement to its "Total Rewards" slot club program now used by more than 20 million customers. The "Total Rewards 2" program will allow players to accumulate rewards points that can be redeemed for complementaries of their choice. Existing Total Rewards club members must redeem comps on their current visit and can't build up reward credits. Under Total Rewards 2, players' credits would expire if they didn't gamble within six months.

Also this year, Harrah's expects to roll out thousands of "cashless" slot machines that will be able to dispense paper vouchers in addition to coins.

The move follows similar efforts by other major casino competitors that say cashless slots can both cut labor costs by decreasing coin maintenance while increasing gambling revenue by speeding up play.

Unlike competitors that are purchasing systems from other manufacturers, Harrah's is developing its own cashless slot system that will be able to communicate with existing proprietary casino software, President and Chief Executive Officer Gary Loveman said.

That way, the company can better tailor marketing pitches to particular customers based on their spending patterns, Loveman said.

"Cashless slots will give us competitive advantages that go beyond the removal of (coins)," he said.

The company aims to convert about a third of its slot machines nationwide to cashless systems by the end of the year. Over the next few years, about 35,000 of the company's roughly 45,000 slots will use cashless systems.

Some machines have technology that isn't compatible with the new systems, while others are higher-denomination machines whose players haven't shown as much interest in cashless technology, Harrah's Chief Operating Officer Timothy Wilmott said.

The company has so far authorized up to $30 million to convert the machines but expects to earmark additional capital this year to fund that effort, he said.

Though the company didn't offer a second-quarter forecast, Chief Financial Officer Charles Atwood told investors today he was comfortable with analysts' average estimate of 82 cents per share.

The year-ago quarter did not include the full effect of its Harrah's New Orleans casino. The company owned a 49 percent stake in the casino until late last year, when it required the remaining interest and now includes its performance as part of its financial operating statement.

Harrah's -- the nation's most geographically diverse casino company -- said it increased "same-store sales" by 2.5 percent during the quarter.

Same-store sales account for revenue growth at properties open at least a year.

That was better than the company's 1.8 percent growth in the fourth quarter of last year but lower than the company's long-term target of 5 percent, a reflection of the company's "tough operating environment," Lehman Brothers analyst Joyce Minor said.

Also, cross-market play -- gambling that players did at casinos outside of their home market area -- yielded revenue of more than $250 million in the first quarter, an 18 percent increase from the same quarter of last year.

"High demand for casino entertainment options and limited supply bode well for our company, which has proven its ability to produce sustainable growth in both good and bad economic climates," Loveman said.

The company's diversity helped performance as higher casino taxes in the Midwest were offset by strong performance at the company's Nevada casinos, Minor said.

"Harrah's diversity and operating strategy once again proved resilient" in the first quarter, Minor wrote in a research note to investors today.

Harrah's Nevada casinos reported a 10.8 percent increase in revenue, to $332.4 million, and a 19.4 percent increase in property cash flow, to $85 million.

Harrah's Las Vegas revenue was up 9.9 percent and cash flow rose 15.9 percent. The Rio casino resort in Las Vegas posted a 13.9 percent gain in revenue and cash flow was up 20 percent -- the highest-ever increase for the property, the company said.

The company's Southern Nevada casinos posted an 11.3 percent increase in revenue, to $228.2 million. Cash flow rose 15.6 percent, to $63.6 million. Revenue at Northern Nevada properties rose 9.7 percent, to $104.2 million. Cash flow jumped 32.1 percent, to $21.4 million. Individual property data wasn't available.

Revenue at the company's Lake Tahoe casinos rose 9.3 percent and cash flow jumped 36.3 percent, helped by an increase in loyalty club play, non-tracked gambling revenue and a cost savings resulting from the company's acquisition of Harveys Casino Resorts.

Revenue at Harrah's Laughlin rose 6 percent to a first-quarter record but cash flow was flat.

The company's Atlantic City casinos reported a 3.7 increase in revenue, to $178.4 million, and a 2.6 percent increase in cash flow, to $58.4 million.

The company's northern Midwest casinos reported a 4.8 percent decline in revenue and a 22.8 drop in cash flow as higher casino revenue taxes and increased competition hurt returns.

Full ownership of Harrah's New Orleans, purchased in June 2002, boosted revenue in the southern Midwest region by 58.7 percent and cash flow by 34.9 percent. It generated $73 million in revenue and $18 million in cash flow during the quarter. The company is looking to build or acquire a hotel for the casino and expects to open a new steakhouse and buffet in July. Government officials there had previously prohibited the casino from owning restaurants.