Harrah’s revenue up, profit down 1.5 percent

Wednesday, Oct. 22, 2003 | 11:05 a.m.

Higher casino taxes and stiffer competition from Indian and non-Indian casinos cut third quarter profit at Harrah's Entertainment Inc., though strong returns at the company's Las Vegas casinos proved a bright spot for the company.

The company today still beat analysts' expectations by 2 cents per share and shares rose about 75 cents, or 1.8 percent, to $42.03 in early trading this morning.

Profit fell 1.5 percent to $99.5 million for the quarter compared to $101 million for the same period a year ago. On a per share basis, the company earned 90 cents compared to 89 cents a year earlier, when more shares were outstanding.

Cash flow fell 3.4 percent to $316.5 million, though revenue rose 2.2 percent to $1.2 billion. Revenue at properties open at least a year -- a key performance indicator for Harrah's -- fell 0.5 percent for the quarter.

Service cuts at the company's Joliet, Ill., casino to offset a tax increase in that state led to the decline in same-store revenue, the first down quarter in 19 consecutive quarters, executives said today.

An improving economy, as well as upgraded slot machine technology and a more appealing gamblers' club card, are expected to contribute to "another period of rapid earnings growth" for the company, Harrah's Chief Executive Officer Gary Loveman said.

Harrah's deal to acquire riverboat casino operator Horseshoe Gaming Holding Corp. for $1.45 billion also is expected to significantly boost earnings upon its completion next year, he said.

Poorer results in Atlantic City, Illinois and other northern properties in the Midwest were offset by strong returns in Southern Nevada and New Orleans, the company said.

The tradeoff was largely expected, though some analysts said Nevada results beat their estimates.

"Standouts included Rio and Lake Tahoe, which we thought might see a bigger competitive impact from Thunder Valley," Lehman Brothers analyst Joyce Minor said in a research note today. Thunder Valley, a tribal casino managed by Station Casinos Inc. that opened near Sacramento in June, is blamed for declines at some Northern Nevada casinos.

Revenue fell 1 percent to $137.6 million and cash flow fell 4 percent to $43 million at Harrah's Northern Nevada casinos.

But on the flip side, management fees from the four Indian casinos that Harrah's runs in California, Kansas, North Carolina and Arizona were up 20.6 percent from a year ago, primarily attributable to the addition of Harrah's Rincon, which opened near San Diego in August 2002. Property specific totals aren't available.

Business from loyalty card holders helped business in Southern Nevada, led by increases in gambling revenue at Harrah's Las Vegas and the Rio of 4 percent and 20 percent, respectively. Revenue was up 8 percent and cash flow was up 19 percent at Harrah's Laughlin. The firm doesn't reveal totals for individual properties.

Revenue at Southern Nevada casinos rose 10.1 percent to $224 million and cash flow rose 18.4 percent to $57.2 million.

Competition from the luxury Borgata resort in Atlantic City has hurt returns at the company's Harrah's and Showboat casinos there.

Higher taxes in Indiana and Illinois also sliced profits in those states, while competition heated up in Missouri for the company's St. Louis and Kansas City casinos.

Casinos in the south central United States reported a 14.1 percent increase in revenue to $196.1 million.