Park Place swings to profit, reduces forecast

By Liz Benston

Thursday, May 1, 2003 | 11:28 a.m.

Park Place Entertainment Corp.'s Celine Dion show has sold out every night since its March 25 debut at the Caesars Palace Colosseum theater, driving higher room rates, gambling revenue and spending on food and beverages, executives told investors today -- as they also warned of weak company-wide trends in April.

The stronger business at Caesars during the first quarter appeared to extend to its sister properties across the Strip as revenue increased at Park Place's Flamingo, Bally's and Paris properties.

During the company's first-quarter earnings call, executives said Caesars Palace posted an increase in revenue per room in April -- a difficult transition month for the local economy and a sign that the property's trends are improving.

Analysts have criticized Park Place for plowing money into its flagship property without seeing meaningful results. The property has struggled to compete with newer luxury megaresorts in recent years, though the company says returns are improving as it adds upgraded restaurants and other attractions.

"The Celine Dion show seems to be boosting revenues at Caesars, which is a good sign and the first sign that the Caesars turnaround may have begun," Goldman, Sachs & Co analyst Steven Kent said today.

The company earned $41 million in the first quarter compared to a loss of $939 million for the year-ago quarter. Earnings per share were 14 cents compared to a loss of $3.09 per share.

The year-ago quarter result includes a loss of $979 million for a write-down of goodwill, an intangible value assigned to a company's assets.

On an operating basis, the company earned 14 cents per share -- in line with analysts' expectations -- compared to 13 cents a year earlier.

However, the company significantly lowered its second quarter earnings forecast to between 7 and 11 cents -- lower than analysts' forecast of 20 cents -- based on lower April business volume and lower than expected returns from gamblers in the West and East coasts. The company expects full year earnings of between 40 and 48 cents, falling short of analysts' expectations of 53 cents.

Park Place stock fell about 1.2 percent before noon trading today, to $7.35.

Casino business in Las Vegas suffered in April somewhat from the "CNN effect" of the Iraq war in which people were watching events on television instead of spending money gambling. Business also fell because of the presence of Easter and Passover, which fell in March last year and are times when people are spending more time at home, Lehman Brothers analyst Joyce Minor wrote in a research note to investors today.

The Park Place warning may indicate Las Vegas operators such as MGM MIRAGE and Mandalay Resort Group also suffered in April, she said.

Park Place revenue was $1.1 billion in the first quarter, flat with last year. Cash flow was $274 million, down from $279 million in the year-ago quarter.

"In a difficult environment, Park Place turned in a solid first quarter performance," the company's Chief Executive Officer Wally Barr said.

Bad weather in February affected results in the East and South "but we kept the lid on expenses and posted a slight increase in net income on flat revenue" primarily due to strong performance in Las Vegas, Barr said.

At Caesars Palace, the average daily number of visitors was up 33 percent from the prior year's quarter and average daily food and beverage revenues rose 35 percent. Daily gambling volume increased 23 percent. Assuming the casino wins a typical percentage from gamblers each day, the results translate into about $200,000 of incremental daily revenue compared to pre-show performance, the company said.

Caesars Palace reported $28 million in cash flow and $122 million in revenue, up from $17 million and $112 million for the year-ago period.

Park Place also expects to complete an outdoor Roman-theme plaza that will serve as a new gateway from the Strip, an interior connector linking the main casino with the Colosseum theater and new restaurants and nightclubs before the end of the year.

The Dion show may not be enough to pump up a Las Vegas market that "seems to have plateaued at a much lower level" than normal, UBS Warburg analyst Robin Farley wrote in a research note to investors today.

Other properties were roughly in line with last year, though Bally's-Paris on the Las Vegas Strip reported $166 million in revenue compared to $161 million last year. The Flamingo in Las Vegas reported $76 million in revenue, up from $70 million.

The strong performance in the West helped offset weaker results in the East and Mid-South.