Harrah's slashes costs amid slowdown


Harrah's Entertainment is continuing to cut jobs and capital expenditures as well as costs in corporate, marketing and purchasing to combat a decline in customer spending, company executives said Friday.

The world's largest casino company by revenue on Friday posted a third-quarter loss due to the gaming slowdown on the Strip, decreased visitor numbers across the company's 50 casinos and the closure of properties in the Gulf Coast because of hurricanes.

"To the degree revenues continue to decline, costs will have to continue to come down," company Chairman and Chief Executive Officer Gary Loveman said during a conference call to review the company's earnings. "To the degree we see further erosion of revenue, we'll continue to aggressively respond with cost reduction."

Harrah's, which is privately held but has publicly traded debt, reported a net loss of $129.7 million for the quarter ended Sept. 30, compared with net income of $244.4 million in 2007.

The company's net loss for the first nine months of 2008 increased to $415.1 million, a swing from net income of $667.2 million the first nine months of 2007.

Harrah's will continue to "scrutinize every dollar of capital spending" well into next year to position the company so it can "benefit from the eventual economic rebound."

Although the company said it plans to cut capital expenditures, which include property maintenance and remodeling, by 50 percent or more, Loveman said the move won't leave Harrah's at a disadvantage because its competitors have made similar decisions.

The economic downturn, however, has not slowed work on the new 665-room Octavius Tower at Caesars Palace, which is scheduled to open in July.

Nearly $240 million has been spent on its construction, with an additional $125 million slated to be spent on the project in the fourth quarter, company Chief Financial Officer Jonathan Halkyard said.

Approximately $400 million is scheduled to be spent to complete the tower next year.

Third-quarter revenue slipped 6.8 percent to $2.64 billion from $2.84 billion last year.

Revenues the first nine months of 2008 slipped 4.3 percent to $7.85 billion from $8.2 billion last year.

Cash flow, defined as earnings before interest, taxes, depreciation and amortization, fell 18.8 percent to $641.7 million in the quarter from $790.4 million.

Nine-month cash flow dropped 13.7 percent to $1.89 billion from $2.19 billion.

KDP Investment Advisors bond analyst Barbara Cappaert said the poor operating results were "nothing out of the ordinary" from what the industry has been experiencing across the country.

Loveman didn't say how long the turnaround might take, but said, "We are taking the right steps to weather the storm."

Cappaert agreed with Loveman's assessment, writing in a note to investors that with "the cost-cutting move contemplated and the (capital expenditure) pullback expected, the company should have tight but sufficient liquidity to weather the current storm."

Harrah's Entertainment has $24.2 billion in debt at the end of the quarter, mostly leftover from the $17.7 billion buyout in January by private equity firms Apollo Management and TPG Capital.

The casino company has cut approximately 1,800 jobs in Las Vegas this year, and another 200 around the state. In October, 21,849 full-time employees worked at the company's eight local properties, according to company officials.

The staff reductions have also hit other properties in other states Harrah's operates.

Employment figures compiled by New Jersey regulators show hundreds of jobs have been cut through September at Bally's Atlantic City, Caesars Atlantic City and Showboat Casino Hotel, the Press of Atlantic City reported last month.

In smaller markets, newspapers have reported dozens of employees have been let go at individual properties, such as the 45 employees recently laid off at Harrah's Joliet in Illinois.

Contact reporter Arnold M. Knightly at aknightly@reviewjournal.com or 702-477-3893.

 

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