Harrah's Focuses on Expansion - Sunday 30th of April 2006
by Howard Stutz
Las Vegas Gaming Wire
LAS VEGAS Las Vegas-based Harrah's Entertainment said Thursday that with hotel-casinos that were once part of Caesars Entertainment now under its corporate banner, the company can turn its attention toward expanding its presence as a casino industry giant.
Driven largely by contributions from the former Caesars properties and the integration of gamblers from those casinos into Harrah's customer loyalty program, Harrah's called its earnings for the first quarter of 2006 "record setting."
Company revenue for the three-month period that ended March 31 were $2.4 billion, a 93 percent increase from $1.2 billion a year ago. Same-store sales revenues earned by casinos that were part of Harrah's prior to the company's $9 billion buyout of Caesars last June grew more than 10 percent.
First-quarter net income was a company-record $182.4 million, a 76 percent increase from $103.8 million in 2005. That figure translated into an earnings per share of 98 cents in the quarter, up 9 percent from the 90 cents achieved a year ago.
Analysts polled by Thomson First Call had predicted Harrah's would earn 92 cents per share.
"We are one company and what the Caesars transaction did in general was give us a tremendous footprint to expand and grow," Harrah's Chairman and Chief Executive Officer Gary Loveman said following a conference call with analysts and investors.
He said cost-savings from the merger with Caesars reached the company's projected target of $80 million by the end of the quarter, three months ahead of schedule. Loveman said the full-year cost savings from the Caesars deal should reach $110 million by the transaction's one-year anniversary and $180 million in the second year.
"(This is) very positive and something that should not be overlooked," said Bear Stearns gaming analyst Joe Greff.
In Las Vegas, Harrah's said its total revenue during the quarter was $825.7 million, $255.1 million from its original Harrah's properties (Harrah's Las Vegas and the Rio) and $570.6 million from acquired casinos (Caesars Palace, Flamingo, Bally's, Paris Las Vegas and the Imperial Palace).
Companywide, cashflow earnings before interest, taxes, depreciation and amortization was $690.1 million, a more than 100 percent increase from $343.2 million last year.
Despite the loss of revenues from casinos damaged by Gulf Coast hurricanes last fall, Harrah's financial performance in the quarter grew as former Caesars customers became part of Harrah's Total Rewards customer-loyalty program.
"(The first quarter was) a period in which our Total Rewards customer-loyalty program was not yet fully integrated into all Caesars properties," Loveman said. "Now that it is operational at every domestic property, Total Rewards is expected to produce even more substantial gains in operating results, particularly in the second half of the year."
Greff said the product integration included bringing Harrah's management system into Caesars properties.
"We think these metrics bode well for future Caesars' performance," Greff said.
Harrah's shares closed at $79.95, up $1.68, or 2.15 percent, on the New York Stock Exchange.
Loveman said the integration of the Caesars puts the company on a long-term development program.
While using the Caesars brand to grow internationally, Loveman said Harrah's also intends to expand its influence along the Atlantic City Boardwalk, rebuild its presence in hurricane-ravaged Biloxi, Miss., and develop a master plan for Las Vegas that includes more than 100 acres of undeveloped land around its seven Strip casinos.
"Over the past eight years, we have demonstrated our ability to drive customer visitation to multiple Harrah's properties across the wide range of markets we serve," Loveman said. "That ability will serve us well in the future as we execute the stages of our master development plan for Las Vegas."
Harrah's is looking at a wide range of expansion possibilities for its Las Vegas properties, including additional hotel rooms and a potential sports arena. Much of the development, Loveman said, will focus on an area surrounding the intersection of Flamingo Road and the Strip.
"We're conceptualizing what we want to do there because we have three corners (Bally's, Caesars Palace and the nearby Flamingo)," Loveman said. "Think of Times Square (in New York) and Piccadilly Circus (in London). No one has three corners there, We want to make that intersection a central place that transcends one hotel."
Harrah's is moving ahead with plans to put Caesars-themed casinos into Spain, Slovenia and the Bahamas. The company also is in the final stages of bidding to build an integrated resort in Singapore.
In Atlantic City, Harrah's will open the initial phase of a retail shopping complex at Caesars in June while planning a $550 million expansion at Harrah's. The company has more than 20 acres available for additional development.
Harrah's will also reopen a portion of the hurricane-shuttered Grand Casino in Biloxi this summer, while planning a larger facility to anchor the Gulf Coast gaming market.
Immediately after the earnings announcement, Harrah's announced it would spend $485 million to expand and renovate its Horseshoe Casino in Hammond, Ind., which serves nearby Chicago.
One gaming analyst questioned the move. Goldman Sachs gaming analyst Steve Kent thought the company would invest in stronger gaming markets. He thought the move might be done in answer to Boyd Gaming Corp., which recently spent $170 million to build a new casino boat in Bluechip, Mich., about 40 miles away.
"Last week when we visited the property, we were dismayed to see how negatively impacted the property would be for the next few years due to road construction," Kent said. "It may be good timing to start these renovations now considering this likely construction disruption but the amount of capital commitment seems very high."
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