Wednesday, April 23, 2003
Copyright © Las Vegas Review-Journal

Harrah's earnings surpass projections

Cash flow, revenue also up in first quarter

Tourists wander through Harrah's Carnival Court Tuesday afternoon. Harrah's Entertainment, which owns the property, on Tuesday said first-quarter net income and revenue increased compared with the same quarter a year ago. Photo by Clint Karlsen.

Harrah's Entertainment Inc. beat Wall Street's consensus estimates for its first 2003 quarter with total quarterly sales passing the billion-dollar mark for the first time.

On Tuesday, the Las Vegas-based gaming company said first-quarter net income was $191.2 million, down from $198.1 million in the 2002 first quarter.

Total revenues were a record $1.1 billion, up from $974.7 million the year before.

Cash flow, or earnings before interest, taxes, depreciation and amortization, was $285.3 million, up from $279.9 million the year before.

First-quarter adjusted earnings per share of 74 cents matched the 2002 first quarter's record of 74 cents.

"This was a solid quarter, though most of the upside came from below the cash flow line items," said Joe Greff, gaming analyst at Fulcrum Global Partners, an independent Wall Street investment research firm.

The performance of the company's Nevada properties -- Harrah's Las Vegas, the Rio and Tahoe -- beat Wall Street estimates by $12 million, he said.

"This offset softer-than-projected central region results, which missed our estimate by $10 million. Atlantic City and managed properties were exactly in line with our estimate," Greff said.

Harrah's Chief Executive Officer Gary Loveman said in a conference call with analysts that the first-quarter results showed the company has "a robust growth strategy that allows this company to tolerate a variety of adverse circumstances, (and) that we also have the ability to manage our assets well."

Challenges the company overcame in the first quarter included lower sales volume at some properties, a soft economy and and reduced air travel, he said.

Despite those challenges, systemwide same-store sales increased 2.5 percent overall, the 17th straight quarter of year-over-year same-store increases, Loveman said.

The combination of same-store growth and effective asset management offset higher gaming taxes, he said.

"We're (also) bullish for the back half of the year, but we do see expect short-term clouds related to the tax proposals in Illinois," Deutsche Bank analyst Marc Falcone said.

The new governor of Illinois recently proposed increasing the top incremental tax rate on gaming operations to 70 percent.

At Fulcrum, Greff said Harrah's has only three significant expansion drivers in 2003: the hotel tower at Showboat in Atlantic City, a partial opening of the Louisiana Downs racino in Shreveport, La., and the consolidation of its New Orleans operations.

Falcone, however, said the company is actively looking at potential acquisitions and growth opportunities in the United Kingdom as well as additional opportunities in the United States and riverboat acquisitions.

"(And) strategically, in the grand scheme of things, it makes sense for Harrah's to grow through an acquisition in the Las Vegas locals market," he said, naming both Coast Casinos and Station Casinos as possible merger targets.

Harrah's shares rose $1.82 Thursday to close at $38.05.