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Mixed reaction on Wall Street
to gaming’s 3Q reports

Oct 28, 2003 4:10 AM

Several of the country’s major gaming companies reported their fiscal experiences for the quarter that ended on Sept. 30 with mixed reactions from Wall Street investors.

At Park Place Entertainment Corp. (PPE), revenue and earnings were relatively flat when compared to a year ago. Net revenue for the third quarter was $1.22 billion compared to last year’s $1.211 billion. Net income moved up to $48 million or $0.16 a share. Last year, when a $10 million charge was taken against earnings because of the cancellation of an energy contract, net income was $40 million or $0.13 a share. Without the charge, net income per share would have been $0.16 a share.

Impressing management, however, was the ability of the company to increase its per room charge at all its Las Vegas properties. These included Caesars Palace, Bally’s, Paris Las Vegas, Flamingo Hilton and the Hilton Las Vegas.

"Higher room rates at all of our Las Vegas properties and an improved performance by Caesars Palace resulted in better third quarter results in the West, while our Atlantic City properties did better than expected in the face of new competition," company president and CEO Wally Barr reported.

He also touched on the company’s California Indian contract to manage a Caesars-branded casino in Southern California as well as applications for new casino licenses in Illinois and Indiana.

Come January, the company will change its corporate name to Caesars Entertainment Inc.

Harrah’s Entertainment

Higher tax rates and stronger competitive factors were partially offset by strong Las Vegas results for the third quarter reported by Harrah’s Entertainment Inc. (HET).

Revenues for the period reached $1.14 billion, a 2.2% increase over last year’s $1.11 billion But EBITDA, earnings before interest taxes depreciation and amortization, fell 2.3% to $316.5 million from last year’s $327.7 million. However, adjusted earnings per share hit a record $0.93, or slightly higher than last year’s $0.91 a share.

Gary Loveman, president and CEO, explained that "We achieved strong operating results thanks to our geographic diversification, vibrant cross market play, targeted capital investments and effective cost management. Excellent performances at Harrah’s Las Vegas and the Rio, Harrah’s Laughlin and Harrah’s New Orleans, as well as contributions from our Louisiana Downs thoroughbred race track and casino, offset weaknesses in traditionally strong areas such as Atlantic City, where market growth rates lagged capacity additions."

Also playing an important role in maintaining fiscal progress, said Loveman, was the company’s Total Rewards program. Not only has cross marketing continued to produce increased play from "higher budget customers," he said, but "we began to see stronger business from retail customers.

Problems caused by the huge increase in the Illinois gaming tax rates and the additional competition created by the opening of the $1.1 billion Borgata next to its Atlantic City property negatively impacted the company’s results.

Two major actions taken by the company that should impact its operations in the near future are the contract to purchase 11,000 new coinless-capable slot machines and the agreement to acquired Horseshoe Gaming Holding Corp. for $1.45 billion. The acquisition is expected to be completed in the first quarter of 2004, the company said.

MGM MIRAGE

Reporting results that were in line with the company’s previous guidance, MGM MIRAGE Inc. (MGG) said it generated net revenues of $990 million with adjusted earnings per diluted share amounted to $0.36, down from last year’s $0.52.

Terry Lanni, company chairman and CEO, said, "Our third quarter performance was satisfying on many fronts, including an increase in demand for result travel, and increased spending among out visitors. We expect that the upcoming convention and holiday season will likely provide further data to support the recent positive trends."

Casino revenue, which was up 1% for the period, was hurt by lower win percentages, especially at the Bellagio. Things were better at MGM Grand Las Vegas where table game volume, including baccarat, was up 12% over the comparative quarter.

Company-wide, slot revenue was up 6% with MGM Grand, New York-New York and The Mirage all posting double-digit percentage increases in slot revenues.

Beneficial were increases in non-casinos revenue such as hotel revenue, food and beverage, entertainment and retail. For the quarter, hotel revenue was up 7% while the other non-casino sources showed an increase of 9%.

Impacting the fiscal results were the pre-opening and start-up expenses, including $3.5 million for the Borgata in Atlantic City, and $3 million related to improvements at New York-New York and the developing entertainment venues.

Aztar Corporation

Fiscal results for the third quarter may have been relatively flat but "the excitement level is growing" for the major expansion of the Tropicana Atlantic City, the company flagship, said Paul Rubeli, president and CEO of Aztar Corporation.

"We are less than five months away from opening the major expansion of our Tropicana Atlantic City," said Rubeli, who has been among the strongest supporters of Atlantic City gaming for more than the past decade.

"The Quarter at Tropicana will bring a new dimension to Atlantic City. With over 40 new dining, entertainment retail and spa outlets, The Quarter will create a compelling reason for Atlantic City gaming patrons to visit, and become regular customers at Tropicana," Rubeli said.

Earnings for the third quarter amounted to $0.46 a share compared to last year’s $0.43 but EBITDA dropped to $48.6 million versus last year’s $49.8 million.

Operating income was $35.6 million, down from the $36.9 million recorded in last year’s third quarter. And net income was $16.9 million versus $16.6 million in the 2002 quarter.

As for the company’s property in Las Vegas, the company said no decision on a renovation or expansion will be made until next year.

Penn National

Substantial increases in both revenue and net income were reported by Penn National Gaming Inc. (PENN) for the third quarter that ended on Sept. 30.

Net revenues rose by 81.2% to $316.1 million compared to $174.4 million in the third quarter of 2002. Net income and diluted per share earnings rose to $13.6 million or $0.34 a share from last year’s $9.9 million or $0.25 a share.

In reporting the quarterly numbers, the company emphasized that the report did not include results of the Hollywood Casino in Shreveport, La. That property is operated by a separate company called Hollywood Casino Shreveport and is not incorporated onto the company’s balance sheet.

"For the third consecutive quarter," noted CEO Peter Carlino, we generated same store year over year EBITDA gains at each casino property that we have owned for more than a year ”” namely Charles Town, Casino Rouge, Casino Magic, Bay St. Louis, Boomtown Biloxi, Bullwhackers and our Casino Rama management contract.

"Our casino property gains and contributions again offset an approximate 15% quarterly drop in EBITDA from the Pennsylvania and New Jersey racing operations”¦ We remain hopeful that the potential for slots at Pennsylvania tracks continues to advance," he said.

Noteworthy to the fiscal report, Carlino said, was the benefit of increasing the number of slot machines at its facility in Charles Town. Revenues at the track jumped from $69.3 million last year to this year’s $90 million.

Kerzner International

A major turnaround was reported by Kerzner International Limited (KZL), operator of the Atlantis Casino on Paradise Island, for the third fiscal quarter.

Net income in the quarter reached $6.5 million compared to net loss of $0.4 million in the comparable period of 2002. Per share earnings was $0.22. The loss per share last year was $0.02.

"For the second consecutive quarter," reported Butch Kerzner, company president, "Paradise Island reported record levels of gross revenue and EBITDA. We had a terrific summer at Paradise Island, as Atlantis benefited from strong demand in the leisure and casino businesses."

Revenues for the period reached $117.7 million and EBITDA of $28.4 million. Last year, in the third quarter, revenues were $112.5 million and EBITDA was $24.2 million.

Kerzner also reported that during the quarter, the company began construction of the $100 million first phase of construction on three new luxurious villas to be known as the One&Only Ocean Club.