Cash flow, revenue dip in quarter for Harrah’s
Harrah's Entertainment on Friday joined other gaming companies and posted decreases in quarterly revenues and cash flow as the economic slowdown hurt the company's operations throughout the country.
However, Chairman and Chief Executive Officer Gary Loveman said several construction projects around the country will put the company in a good position once the economy begins to recover.
Harrah's posted a net loss of $187.8 million for its first quarter ended March 31, compared with a net income of $185.3 million last year, according to a Friday filing with the Securities and Exchange Commission.
Total revenues declined 2.1 percent to $2.6 billion from $2.66 billion in 2007 while property cash flow, defined as earnings before interest, taxes, depreciation and amortization, fell 6.9 percent to $650.5 million from $698.4 million.
The company had posted increases in both categories last quarter and for 2007.
"The first quarter was an odd assemblage of months of very different qualities," Loveman said during a Friday conference call.
January was "benign," February was "encouraging" and March was "lousy" for the company, he said.
However, $211.3 million in costs related to an early debt retirement, and another $142.6 million related to the company's buyout also contributed to the loss.
In Las Vegas, revenues dropped 4 percent to $863 million from $898.6 million while cash flow fell 7.5 percent to $275.3 million from $297.6 million.
The casino company owns and operates Caesars Palace, Rio, Paris Las Vegas, Bally's, Bill's, Flamingo, Imperial Palace and Harrah's on the Strip.
Those properties generated 33.2 percent of the company's revenues and 42.3 percent of its cash flow.
Harrah's owns and operates 51 properties in 10 states and internationally. Company casino revenues dropped 3.3 percent to $2 billion from $2.2 billion for the quarter.
Harrah's current growth pipeline in Las Vegas and around the country appears unaffected by the economy although projects other companies have planned have suffered setbacks.
A $1 billion expansion of Caesars Palace is still planned for a partial opening next year with completion in 2010.
In March, Harrah's Atlantic City opened the first 12 floors of a new 960-room hotel tower, part of a $565 million expansion that will continue through midyear.
Work also continues toward a fall completion of a $485 million expansion of the Horseshoe in Hammond, Ind. and the $704 million Margaritaville Casino & Resort in Biloxi, Miss., which is scheduled to open in 2010.
However, there was no mention of a $500 million arena slated for land behind Bally's and Paris Las Vegas.
Harrah's spokeswoman Jacqueline Peterson referred all questions about the arena to Los Angeles-based Anschutz Entertainment Group, which is funding and will manage the 20,000-seat facility.
The plans for the arena still need approval of Clark County officials.
International plans for Harrah's have suffered a series of setbacks in the past two months.
The company withdrew from a proposed $2.6 billion resort project in the Bahamas and shelved talks with Slovenia-based Hit Group about developing a $1.2 billion resort in the Eastern European country.
Another possible international setback, although Loveman downplayed the news Friday, was an announcement by Chinese officials in late April that new casino licenses in Macau will not be approved.
Harrah's has been shut out of the gaming enclave.
In September, Harrah's paid $577.7 million for the rights to a land concession contract for the 175-acre Macau Orient Golf Course. Some gaming observers believed then that Harrah's could transform the golf course into a hotel-casino site.
"Use of our land position in Macau is something we understood would take some period of time," Loveman said Friday.
Private equity firms Apollo Management and TPG Capital acquired the gaming company in a $30.7 billion buyout, including debt. The equity investors received $5 million in service fees for the quarter.
Harrah's Entertainment is no longer publicly traded but still must file quarterly earnings reports with the Securities and Exchange Commission to guide bondholders.
Contact reporter Arnold M. Knightly at aknightly@reviewjournal.com or 702-477-3893.
PROFITS PLUNGE FOR GOLDEN NUGGET PARENT
Profits for Landry's Restaurants, parent company of the Golden Nugget casinos in Las Vegas and Laughlin, fell 93 percent in the first quarter and a company executive said to expect cash flow at the Nevada casinos to be down 5 percent to 8 percent for 2008.
Earnings were $1.5 million, or 10 cents per share, for the three months ended March 31, down from $22.1 million, or $1.01 per share, a year earlier.
Analysts polled by Thomson Financial expected earnings of 36 cents per share.
Increased interest expenses and the loss of some discontinued operations took the blame for the profit decline and weak occupancy, and lower room rates in Las Vegas are why Landry's executives expect the Nevada properties will report lower earnings before interest, taxes and depreciation.
The company is also about to start construction of a $160 million hotel tower at the Golden Nugget in Las Vegas, which Executive Vice President and Chief Financial Officer Rick Liem said will reduce the amount of available cash on hand.
During a conference call he said Landry's, which owns five restaurant chains, hotels, marinas and amusement parks as well as the Golden Nugget properties, would cope with the tough times by reducing costs.
"We are tightening our belts and focusing on our labor and cost controls," Liem said. "We believe the remainder of 2008 will be challenging for us and the rest of the industry."
Revenue for the entire company, based in Houston, rose 3.9 percent to $294.8 million from $283.6 million.
During the conference call Liem defended the company's decision to proceed with the hotel tower at the Golden Nugget. He said the tower is a long-term project and shouldn't be stopped due to short-term business cycles.
"Once you start it, you pretty much need to finish it," he said.
The new tower is expected to open in late 2009 or early 2010.
Landry's stock fell 72 cents, or 4.57 percent, Friday to close at $15.02 on the New York Stock Exchange.
BENJAMIN SPILLMAN/REVIEW-JOURNAL
