Harrah’s earnings forecast stronger than expected

Thursday, April 7, 2005 | 11:15 a.m.

Harrah's Entertainment Inc. surprised gaming analysts today with an announcement that it expects to report first quarter adjusted earnings per share of between 95 and 99 cents, easily beating earlier estimates of 83 cents.

The Las Vegas-based company, which owns Harrah's Las Vegas and the Rio and is in the process of acquiring Caesars Entertainment Inc., made the disclosure in a Securities and Exchange Commission filing Wednesday.

The company will formally announce quarterly financial results April 20.

Investors reacted positively to the news, boosting Harrah's stock 8.5 percent to $68.96 a share in early trading today.

Tim Wilmott, Harrah's chief operating officer, said strong results at the company's Southern Nevada properties are likely to produce a record quarter for the company.

"These results more than offset weather-related declines in business at our Northern Nevada properties," Wilmott said in a statement issued at the time of the filing.

Chief Executive Gary Loveman added that the company's loyalty programs are continuing to pay dividends.

"We expect to report same-store sales growth of approximately 6 percent in the first quarter," Loveman said in a statement. "This is further evidence of the effectiveness of our cross-marketing strategy and customer-loyalty initiatives, such as Total Rewards 2 and Fast Cash."

A survey of 18 analysts by Thomson-First Call had projected earnings per share of 83 cents.

"This news is clearly a positive sign for Harrah's, but more broadly, it is evidence that growth is extending beyond Las Vegas and into regional markets, which is a positive sign for all regional gaming operators," said Steven Kent, an analyst with Goldman Sachs, in a note to investors today.

"Harrah's is the second operator (Station Casinos Inc. was the first) to pre-announce better-than-expected results for the quarter, so we are seeing evidence of a very strong quarter for the gaming operator stocks," Kent said. "Management cited broad positive trends across the country, including very strong performance in Southern Nevada, record results in the north central region (Illinois and Indiana), lower taxes in Iowa and the early success of the Horseshoe properties, which helped drive companywide same-store sales growth of 6 percent."

One observer cautioned that the results include income that some analysts did not consider when making their earnings estimates.

"There has been some confusion over the inclusion of approximately $10 million of discontinued operations income in the consensus numbers, we believe, and the earnings beat, while still strong, is lower than at first glance," said Celeste Mellet Brown, an analyst with Morgan Stanley, in a note to investors today. "Including this income, our adjusted earnings per share estimate would have been 92 cents vs. 83 cents."

Harrah's expects to complete its $9.4 billion acquisition of Caesars in the second quarter.