Park Place profit steady; views on Las Vegas mixed

Thursday, Oct. 23, 2003 | 11:08 a.m.

Profit stayed level at Park Place Entertainment Corp. in the third quarter compared to the same period last year, though the company credited higher room rates in Las Vegas and improved performance at Caesars Palace with helping results.

"Work at Caesars is now beginning to bear fruit," Chief Executive Wally Barr said in a conference call to analysts today.

Earnings rose 20 percent to $48 million from last year, when the company incurred one-time expenses.

On a per share basis, the company earned 16 cents -- meeting analysts' estimates -- compared to 13 cents per share a year ago. Excluding $10 million in charges from the cancellation of an energy purchase contract, damage caused to Gulf Coast properties caused by Tropical Storm Isidore and pre-opening expenses last year, third quarter 2002 profit would also have been 16 cents per share.

Park Place shares fell about 19 cents, or 2 percent, to $9.29 in trading this morning as analysts offered mixed comments about the company.

Fulcrum Global Partners casino analyst Joe Greff upgraded shares to "buy" from "neutral" in part based on positive signs in Las Vegas, relatively low share price and the company's outlook for Atlantic City.

But some analysts had predicted better results from Las Vegas.

"Western region results came in weaker than our forecast, which, coupled with (MGM MIRAGE's) lackluster performance (in the third quarter) may raise investors' concerns that the recovery in Las Vegas is less robust than expected just a few weeks ago," Goldman, Sachs & Co. gaming analyst Steven Kent said in a research note today.

While Caesars Palace benefited from higher room rates and gaming volumes, other Las Vegas properties suffered from low casino volume and lower hold percentages, or the percentage of bets won from gamblers, he said.

Cash flow more than tripled to $23 million from last year's $5 million at Caesars Palace. The increase still was "not stellar given recent capital investments," said Marc Falcone, an analyst with Deutsche Bank Securities.

"We think extensive construction disruption continues to impact results at Caesars and Flamingo," he said in a research note.

Several upgrades are still under way at Caesars Palace, which ended the quarter with its 105th consecutive sold out show for Celine Dion at the Colosseum theater, executives said. The first improvement, an east casino connector that will add more casino space and restaurants, is set to open by year-end, Barr said.

A "Roman Plaza" featuring restaurants, retail shops, wedding chapels and an outdoor ampitheater will become the new Strip entrance to Caesars Palace on its southeast corner and is due in summer 2004. A 949-room hotel tower at Caesars is still scheduled for completion in 2005, preceded by a late 2004 debut of the 175,000-square-foot expansion of the Forum Shops mall.

Park Place is actively pursuing individual casino projects nationwide and is also interested in opportunities in Britain, Barr said.

Opportunities include a proposal to build a casino at the Mall of America in Bloomington, Minn.; a deal with the Pauma-Yuima Band of Mission Indians to build a resort casino near San Diego; and a separate agreement with the St. Regis Mohawk tribe to build a casino in upstate New York. The company also is interested in a new license up for grabs in Illinois and a proposal to build a casino in French Lick, Ind. The company also has land for potential development in Philadelphia, though casino legislation hasn't yet been proposed in Pennsylvania.

The company aims to help introduce a bill in the 2004 legislative session in Minnesota that would legalize a casino near the Mall of America. Barr said the proposal does not involve any Indian tribes.

Meanwhile, the Pauma tribe is exploring options for more slot machines, executives said. The tribe is now licensed for 850 slots but has a state compact that allows for up to 2,000 slots.

Revenue rose about 1 percent from last year to $1.2 billion. Cash flow fell 2 percent to $284 million.

Park Place began a cost-cutting plan last year and is still aiming to offset the effects of increased wages, insurance and benefit costs as well as higher casino taxes nationwide, Chief Financial Officer Harry Hagerty said. The company's decline in cash flow for the quarter is roughly equivalent to the increase in taxes in Indiana and New Jersey, he said.

Revenue at Las Vegas, Reno, Lake Tahoe and Laughlin properties rose 3.5 percent to $504 million, while cash flow increased 6.9 percent to $93 million.

Revenue per available room across the region jumped more than 9 percent from the year-ago quarter, offset by generally lower gaming volumes at properties other than Caesars Palace, executives said.

Park Place's Paris and Bally's resorts reported a combined cash flow decline of 10.6 percent to $42 million. The Flamingo Las Vegas reported a 9.5 percent drop in cash flow to $19 million. The Las Vegas Hilton experienced a negative cash flow of $2 million, even with last year.

Atlantic City resorts and the company's Dover Downs racetrack casino in Delaware reported a 2.7 percent decline in revenue to $403 million and a 7.1 percent decline in cash flow to $130 million.

The opening of Borgata has not grown the Atlantic City market as much as first expected, Barr said.

Park Place recently announced plans to build a $75 million parking garage at Caesars Atlantic City but still won't commit to building a previously announced hotel tower there. Unlike some other casino competitors, Park Place isn't yet convinced that New Jersey won't increase casino taxes further next year, Barr said. The company must also weigh other factors first, including the changing competitive landscape on the East Coast as well as in the city itself, he added.

Revenue stayed flat at $286 million at Mid-South properties in Indiana, Mississippi and New Orleans. Cash flow fell 7.4 percent to $63 million.