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ITT Shares Fall on Casino Expansion News

Gaming: Plans to speed up Vegas projects have investors worried that earnings will be depressed for a couple of years.

September 11, 1996|From Bloomberg Business News

NEW YORK — ITT Corp. shares fell as much as 15% on Tuesday amid investor concerns that the acceleration of a $1.13-billion expansion of two Las Vegas casinos will crimp earnings until mid-1998.

The hotel and casino company said late Monday that it plans to finish additions to Desert Inn and Caesars Palace in early 1998, about six months sooner than it planned. Analysts said the change will dent earnings starting in the third quarter.

"Fewer gamblers are going to be hanging around with all the dust and mess," said Dan Shannon, a casino analyst at STI Capital Management in Orlando, Fla., which owns 550,000 shares.

ITT shares fell $7.75 to $48.25 in late trading of 10.4 million shares on the New York Stock Exchange. It was the second-most-active issue in U.S. markets. Earlier, shares fell as low as $47.50, near the record low of $47.375 in January.

The change in ITT's forecast, which comes barely nine months after it was spun off from the original ITT, has investors accusing the company of an overly optimistic outlook for its two high-priced acquisitions. ITT bought Caesars World Inc. of Los Angeles in 1995 for $1.7 billion and Desert Inn in 1993 for $160 million, a steep price at the time.

"They should have been more conservative with earnings expectations," said Tom Malley, an analyst at Janus Capital Corp., which owned 255,125 shares on June 30.

ITT is planning to open Planet Hollywood casinos in Las Vegas and Atlantic City, N.J., the nation's other gambling mecca. The Vegas casino is expected to cost $830 million and be completed in 1998.

"The operations of this company are still doing very, very well," said Jim Gallagher, a spokesman for ITT. "We are performing where we had anticipated."

ITT plans a $900-million expansion of Caesars Palace and a $228-million expansion of Desert Inn. Speeding up the plans will reduce third-quarter cash flow by $12 million to $15 million. On top of that, baccarat revenue is expected to be 40% less than the $90 million in the year-ago quarter.

ITT said it expects to earn about 56 cents a share in the third-quarter, or similar to pro forma earnings in the year-earlier quarter. The company was expected to have net income of 80 cents a share, based on the average estimate of six analysts surveyed by Zacks Investment Research.

The company also said the entrance of Grand Casinos Inc.'s new Tunica, Miss., casino will hurt earnings at its own Mississippi riverboat casino.

Analysts cut their earnings estimates, some by as much as 40 cents a share for 1996 and as much as 84 cents for 1997. Most expect earnings shortfalls from construction disruption to continue for the next five to six quarters.

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