New York (Reuters) – Harrah’s Entertainment Inc., which agreed in December to be acquired by two private equity firms for USD 17.1 billion, posted lower-than-expected quarterly profit on Tuesday amid weak earnings at its casinos in Atlantic City, New Jersey.
Increasing competition from the new Borgata casino and gaming in nearby Pennsylvania are taking their toll on Atlantic City, the second-largest gambling destination in the United States after Las Vegas.
„Atlantic City definitely has some issues in front of it,“ said Smedes Rose, an analyst at Calyon Securities. „Clearly, it’s hard to argue that a significant amount of new competition is a positive.“
The weak results from Harrah’s as well as a first-quarter profit warning from casino equipment market Shuffle Master Inc. sent gaming shares lower. The Standard & Poor’s Casinos Gambling index was down 2.3 percent.
Harrah’s, the world’s biggest casino operator, posted fourth-quarter net income of USD 47.6 million, or 25 cents a share, compared with a net loss of USD 142.2 million, or 78 cents a share, a year earlier when it was impacted by closures due to hurricanes.
Harrah’s adjusted earnings from continuing operations fell 42 percent to 45 cents a share, while revenue rose 16 percent to USD 2.43 billion. Analysts, on average, had expected a profit of 65 cents a share on revenue of USD 2.31 billion, according to Reuters Estimates.
„Development costs and narrower margins in Atlantic City than in the 2005 fourth quarter impacted overall property (earnings) and, combined with higher interest expenses, affected per-share results,“ Chief Executive Gary Loveman said in a statement.
Income from Harrah’s operations in the Atlantic City region fell 33.4 percent, as it spent more on promotions to attract visitors and prepared the opening of Harrah’s Chester in Pennsylvania. Income from its Las Vegas casinos rose 32.1 percent.
Harrah’s, which owns or manages more than 40 casinos under brand names such as Harrah’s, Caesars and Horseshoe, agreed in December to be acquired for USD 90 a share by private equity firms Apollo Management and Texas Pacific Group.
Stockholders in Harrah’s are scheduled to meet on April 5 to vote on the proposed buyout.
The company completed late last year its acquisition of British casino operator London Clubs International Plc and is developing projects in the Bahamas, Spain and Slovenia.