Harrah’s profit jumps 27%

By Liz Benston

Wednesday, April 20, 2005 | 10:55 a.m.

First-quarter profit rose 27 percent at Harrah's Entertainment Inc. properties based on strong business volume, last year's acquisition of the Horseshoe casino chain and high traffic at the company's Rio and Harrah's properties in Las Vegas, officials said today.

Chief Executive Gary Loveman said the company's acquisition of Caesars Entertainment Inc. is still on track to close by the end of June. During a conference call, Loveman also trumpeted the company's "five consecutive quarters of record earnings" and the ability to attract loyal customers.

Caesars properties are expected to make more money under Harrah's, which has fine-tuned its marketing database to generate repeat business. Caesars still has "many very talented people doing a good job" without those tools, he said.

Harrah's "will not sacrifice elements of the experience at the Caesars properties that contribute significantly to their brands and their success," Loveman added.

Harrah's reported first-quarter profit of $103.8 million, or 90 cents per share, compared with $81.7 million, or 73 cents per share, for the same quarter of last year.

The acquisition of the Horseshoe chain of casinos in July 2004 added 8 cents to earnings per share in the first quarter.

Excluding certain charges unrelated to performance, profit rose 31 percent to $111.5 million and the company earned 97 cents per share compared with 76 cents a year ago. Analysts expected the company to earn 93 cents per share.

Revenue rose 24 percent to $1.3 billion. Revenue at properties open at least a year rose 6 percent over the same period.

Earnings before interest, taxes, depreciation and amortization -- a key indicator of casino performance -- rose 31 percent to $352 million. Officials said nine of the company's casinos set new records based on this indicator, otherwise known as operating cash flow.

Gambling by customers using the company's Total Rewards slot club cards rose 10 percent in the first quarter from a year ago. Gambling by customers at casinos away from their closest Harrah's property rose 16 percent.

The company expects this month to finalize the sale of its casinos in East Chicago, Ind., and Tunica, Miss., to an affiliate of Colony Capital.

In Southern Nevada, revenue at Harrah's casinos rose 12 percent to $288.5 million and operating cash flow rose 20 percent to $98.2 million.

Gains were "particularly impressive" given that they were achieved on top of a record first quarter in 2004, executives said.

The company's Rio and Harrah's properties in Las Vegas averaged $148 in daily cash flow per hotel room compared with only $112 for Caesars' rooms on the Strip -- a difference largely attributed to database management, Loveman said.

Performance indicators fell in Northern Nevada, which was hurt by bad weather in the first quarter.

Harrah's -- the world's largest casino company after its $9.4 billion purchase of Caesars -- expects to spend more than $800 million over the next two years on potential new projects including a race track casino near Philadelphia, a casino in Rhode Island, a tribal casino in Alabama and a major resort in Singapore, executives said.

To purchase Caesars, Harrah's will be increasing its bank debt by $1.5 billion to $4 billion with an option of upping debt to $5 billion. The interest rate is estimated to be lower than 5 percent -- the lowest paid by any casino company.

Shares of Harrah's fell more than 2 percent, to $67.66 per share, in mid-morning trading today.