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Vegas results lift Harrah's net income

The casino company falls short of analysts' expectations because of weak performance by Atlantic City properties.

October 26, 2006|From the Associated Press

LAS VEGAS — Harrah's Entertainment Inc. said Wednesday that its third-quarter profit rose 5% as an incentives program drove players to its properties in Las Vegas.

The company missed analysts' expectations, though, because of poor performance in Atlantic City, N.J.

Net income at the world's largest casino company climbed to $177.2 million, or 95 cents a share, from $169 million, or 91 cents, a year earlier. Earnings from continuing operations were equivalent to 96 cents a share, and on that basis, analysts surveyed by Thomson Financial had expected earnings of 99 cents a share.

Revenue for the quarter increased 11% to $2.51 billion.

A three-day state government shutdown of casinos in Atlantic City in July and a subsequent move by competitors to ramp up marketing campaigns caught Harrah's off guard, Chief Executive Gary Loveman told analysts in a conference call. "Clearly, Atlantic City was our Achilles' heel this past quarter," he said. "We believe our thorough review will enable us to regain lost ground."

The company did not comment on a buyout bid it announced this month by two private equity firms, Texas Pacific Group and Apollo Management, other than to say a special committee of nonmanagement directors continued to appraise the offer.

Harrah's said it was offered $15.05 billion, or $81 a share, but the bid was reportedly raised to more than $15.5 billion, or $83 to $84 a share, after Harrah's rejected the original offer. The transaction would be the biggest deal for a casino operator and the fifth-largest leveraged buyout in history.

Harrah's stock rose 83 cents to $74.78 on Wednesday.

Analyst Rod Petrik of Stifel, Nicolaus & Co. said the stock price was handcuffed by expectations that a final bid would reach $84 to $86 a share. "The stock is not trading on the fundamentals right now; it's trading on the buyout and the percentage likelihood" it gets sealed, he said. A deal will probably take more than a year, which is why the stock is trading at a discount to the expected deal price.

Revenue at locations open at least a year climbed 8%. The comparison includes properties obtained in the Caesars Entertainment Inc. acquisition but excludes sites closed for all or part of the periods because of hurricane damage sustained in last year's third quarter.

Las Vegas resort sales rose 21% in the quarter to $812.4 million from $670.1 million, helped by more frequent visits and higher spending by members of the Total Rewards customer-loyalty program and the World Series of Poker at the Rio hotel-casino in July and August.

Majestic Research analyst Matthew Jacob said the strong showing in Las Vegas boded well for other casino companies that will report third-quarter earnings over the next two weeks, such as MGM Mirage Inc., Wynn Resorts Ltd. and Las Vegas Sands Corp.

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