Harrah’s profit down 34%

By Liz Benston (contact)

Wednesday, Feb. 4, 2004 | 11:01 a.m.

Harrah's Entertainment Inc. today said profit fell 34 percent in the fourth quarter as the company faced higher casino taxes in several states and costs for developing casinos.

But revenue and cash flow from the company's two Las Vegas properties rose as customers continued to use loyalty card points accumulated elsewhere to stay in gambling's mecca. About 60 percent of the company's room nights in Las Vegas are sold to members of the company's Total Rewards program, executives said.

"2004 has started well in Las Vegas," Harrah's Chief Operating Officer Tim Wilmott said.

The company reported fourth-quarter earnings of $35.4 million, or 32 cents per share, compared to earnings of $53.9 million, or 48 cents per share, for the same period a year ago.

Costs included a loss of about $15.9 million on the early retirement of debt and $4.2 million to settle litigation related to a deal with an Indian tribe that did not yet have a state compact, executives said.

Harrah's also reported more than $16 million in development costs related to the development of casinos in the United Kingdom and the introduction of a subscription-based Internet gambling site in the United Kingdom called "Lucky Me," which launched Tuesday.

Analysts said the results were worse than expected and Harrah's stock fell 5.5 percent in early trading.

Deutsche Bank Securities analyst Marc Falcone said promotional costs also factored into the earnings decline.

"We think (Harrah's) was very aggressive in marketing this quarter, which led to the higher revenues and lower margins versus our expectations. Ongoing development costs were also much higher," Falcone wrote in a research note.

Revenue rose 3.6 percent to $1.04 billion. Cash flow fell 3.2 percent to $237.3 million.

"The year 2003 was one of transition for our company as we focused on enhancing our customer loyalty program and seeking new opportunities to expand our distribution," Harrah's Chief Executive Officer Gary Loveman said.

Loveman said he hopes results will improve this year with the economic rebound and that aggressive marketing campaigns by competitors in certain markets will subside.

Revenue at properties open at least a year rose 3.3 percent. Cross-market play -- gambling by customers at Harrah's properties other than their local Harrah's casino -- rose 19.1 percent. Gambling by customers using the company's Total Rewards loyalty cards jumped 10 percent.

Excluding certain non-recurring items including the litigation settlement and debt retirement, Harrah's reported earnings of 50 cents per share compared to 54 cents a year ago. Analysts expected the company to earn an average of 53 cents per share.

Revenue at Harrah's Las Vegas rose 10.9 percent and cash flow increased 23.4 percent. Revenue at the Rio rose 13 percent and cash flow was up by 13.1 percent.

Revenue at Harrah's Laughlin declined 1.5 percent and cash flow was 6.4 percent lower. Competition from tribal casinos in California and increased marketing expenses drove a 10.2 percent decline in cash flow at the company's Lake Tahoe casinos. Revenue at those properties rose 2.3 percent. Tribal casinos also hurt results at Harrah's Reno, where revenue was down 4.5 percent and cash flow fell 23 percent.

The company aims to improve results in Northern Nevada by using air charter services to fly customers in similar to those used in Laughlin, which depends on air travel, executives said.