Economic downturn found Isle of Capri execs napping

Dec 9, 2008 5:06 PM
Earnings by Ray Poirier | Earlier this year, top executives of Isle of Capri Casinos Inc (ISLE) were snapping up shares at what at that time appeared to be bargain basement prices. Shares were selling at $11 to $12 each, down from the 52-week high of $19.18.

Obviously, they like most of their competitors did not foresee a recession on the horizon and the impact the economic slowdown would have on gambling generally and casinos in particular.

After reporting a substantial loss for the company’s fiscal second quarter, the ISLE share price declined to $2.80 each.

Revenues for the second quarter fell to $254 million, a drop of 9% from the previous year’s $278.8 million.

The loss was $13.5 million or $0.43 per share compared with a loss of $24.6 million or $0.80 per share in the prior year. Analysts had expected revenues to fall to $270.2 million and result in a loss of $0.21 per share.

There should be a financial gain reported in the fiscal third quarter, the company said, because of an insurance settlement that related to Hurricane Katrina insurance claims. A payment of $95 million is expected.

Also, the company said, this summer their business was affected by both Hurricane Gustav and Hurricane Ike.

The insurance settlement will provide the company with a "liquidity cushion" for the remainder of the fiscal year. However, the company will forego any new significant capital projects in light of the current rough economic environment. This, the company said, includes work on its facility in Biloxi, Mississippi.

James Perry, executive vice chairman and CEO, said the company was coping with the worse "declining gaming market that I have experienced in my 30 year career."

He added that "consistent with industry trends, we experienced pronounced revenue declines in August and September, but slightly recovered in October."

Following the announcement, Standard & Poor’s Rating Services lowered its non-investment grade ratings on ISLE, citing the difficult conditions in the gambling industry.