Harrah’s profit up, but short of current expectations
LAS VEGAS (AP) – Harrah’s Entertainment Inc. said Wednesday its third-quarter profit rose 5 percent as an incentives program drove players to its properties in Las Vegas, but the company missed analysts’ expectations because of poor performance in Atlantic City.
Net income at the world’s largest casino company climbed to $177.2 million, or 95 cents per share, from $169 million, or 91 cents per share, a year ago. Earnings from continuing operations rose 4 percent to $178.3 million, or 96 cents per share, from $171 million, or 92 cents per share.
Revenue for the quarter increased 11 percent to $2.51 billion.
On average, analysts were expecting earnings of 99 cents per share on sales of $2.41 billion, according to a poll by Thomson Financial.
A three-day government shutdown of casinos in Atlantic City in July and a subsequent move by competitors to ramp up marketing drives caught Harrah’s off guard, chief executive Gary Loveman told analysts in a conference call.
“Clearly, Atlantic City was our Achilles heel this past quarter,” he said. “We believe our thorough review will enable us to regain lost ground.”
The company did not make any comments about a buyout bid it announced this month by two private equity firms, Texas Pacific Group and Apollo Management, other than to say a special committee of non-management directors continued to appraise the offer.
Harrah’s said it was offered $15.05 billion, or $81 per share, but the bid was reportedly raised to more than $15.5 billion, or $83 to $84 a share, after Harrah’s rejected the original offer.
The transaction would be the biggest deal ever for a casino operator and the fifth-largest leveraged buyout in history.
Its stock rose 83 cents to close at $74.78 on the New York Stock Exchange Wednesday.
Analyst Rod Petrik of Stifel, Nicolaus & Co. said the stock price was handcuffed by expectations that a final bid will reach $84 to $86 a share.
“The stock is not trading on the fundamentals right now, it’s trading on the buyout and the percentage likelihood” it gets sealed, he said.
A deal is likely to take more than a year, which is why the stock is trading at a discount to the expected deal price.
Revenues at locations open at least a year climbed 8 percent. The comparison includes properties obtained in the Caesars Entertainment Inc. acquisition, but excludes sites closed for all or part of the periods due to hurricane damage sustained in last year’s third quarter.
Las Vegas resorts sales jumped 21 percent in the quarter to $812.4 million from $670.1 million, helped by more frequent visits and higher spending by members of the Total Rewards customer-loyalty program, and the World Series of Poker held at the Rio hotel-casino in July and August.
Majestic Research analyst Matthew Jacob said the strong showing in Las Vegas bodes well for other casino companies who will report third-quarter earnings over the next two weeks such as MGM Mirage Inc., Wynn Resorts Ltd. and Las Vegas Sands Corp.
“People are starting to realize that the Strip was pretty strong this quarter,” he said.
Harrah’s Atlantic City revenue edged down 0.3 percent to $560.2 million from $562.1 million. Development expenses increased to $28 million from $8 million a year ago as the company prepared to unveil redevelopment plans in Las Vegas and Atlantic City, searched for opportunities abroad, and fought in a referendum that will allow it to help build and operate an Indian casino in Rhode Island.
Loveman said Harrah’s is “in the neighborhood of two or three months away” from announcing a master plan that will reshape 350 acres of contiguous land on the Las Vegas Strip.
Loveman had said in February the plan would be announced this summer, but the buyout bid may have changed plans, which could include selling some casinos, Petrik said.