With many gaming executives warning investors to be cautious in their approach to the next few months, it was no wonder that the shares of the industry’s largest participants struggled last week.
And with earnings reports that failed to meet analysts’ expectations, most of the companies’ shares suffered.
For Harrah’s Entertainment, however, it had no immediate effect since the company reported its fourth quarter earnings after it had completed a private-equity buyout, placing cash in the hands of former stockholders.
For the period that ended on Dec. 31, 2007, Harrah’s Entertainment reported a loss of $47.8 million or $0.26 per share. This compared with last year’s profit of $47.6 million or $0.25 per share. The adjusted net income of $80.1 million was down from last year’s $84.9 million.
The quarter results were impacted negatively by a $169.6 million pretax write-off of impairment charges resulting from a required accounting review of two of its operations, the Caesars Indiana riverboat and London Clubs International PLC, a company that was acquired by Harrah’s two years ago.
As for the year’s performance, the company said it earned $619.4 million or $3.26 per share, substantially higher that in 2006 when the earnings were $535.8 million or $2.85 per share.
A company representative said that there were indications of a modest slowdown in some areas where it operates 50 casinos but in the Las Vegas area "the gaming business has held up well."
A pair of gaming analysts downgraded the shares of Boyd Gaming Corp. (BYD) following the company’s report of a decline in earnings due to a slowing of gaming revenue and growing preopening expenses.
During the fourth quarter that ended on Dec. 31, 2007, the company said net income was $31 million or $0.35 per share compared with $56.6 million or $0.63 per share in 2006.
Net revenues were $478.6 million, down from last year’s $520.8 million.
As for the locals market in Las Vegas, the company said fourth quarter net revenues were $214.4, slightly below last year’s $217.7 million.
A bright spot, the company said, was its Atlantic City operation where the Borgata Hotel/Casino and Spa was able to stay comparable with the previous year despite seeing the entire Atlantic City market fall due to increased competition from additional slots parlors in nearby jurisdictions.
Like other gaming operators, officials of Boyd Gaming warned that "consumers, especially in Las Vegas, are being much more cautious on how they are spending their money."
Dennis Forst of KeyBanc Capital Markets agreed that tightened consumer spending and slowing economic conditions "will likely hurt" casinos that cater to the Las Vegas locals market. He also saw problems developing nationwide because of worsening economic conditions such as rising gas costs.
He advised clients that he was lowering his rating of BYD shares to "underweight" from "hold" and cut his earnings estimate for 2008 to $1.35 per share from the previous $1.45 per share.
Fritz Owens of Calyon Securities Inc. also downgraded the shares to "neutral" from "buy" with a warnings that "Boyd’s Las Vegas locals operations (will) be pressured by a weak housing market and limited room for margin improvement."
A $35 per share price target was quickly reduced to $25 per share last week following the announcement that the current credit crunch might force Pinnacle Entertainment Inc. (PNK) to abandon its $2 billion casino project in Atlantic City.
The announcement was made by Chairman and CEO Dan Lee during the company’s conference during which it announced its fiscal report for the fourth quarter.
"We’re still at the point of compiling our dreams of what can go into that (Atlantic City) property, and they’re pretty big," said Lee. However, he added that "the credit market is essentially closed”¦We’re not going to go broke building in Atlantic City."
For the reporting period, the company said it loss $19.2 million or $0.32 per share compared with last year’s loss of $5 million or $0.10 per share.
Two contributing factors, the company said, were the pre-opening and development expenses related to its Lumiere Place Casino in St. Louis and an increase in the depreciation and amortization costs.
Gaming revenue for the period increased to $194.4 million from the $183.9 million reported in the comparable quarter of 2006.
For the full year, the company said it had a loss of $1.4 million or $0.02 per share compared with the profit of $76.9 million or $1.56 reported a year earlier.