Caesars Entertainment Corp. helped drop the bombshell headline of the second quarter when it said it would merge with Eldorado Resorts in a $17.3 billion deal. On Monday, the company fulfilled the more pedestrian task of reporting earnings and said revenue and a cash flow measure both rose from a year earlier and topped Wall Street forecasts.
However, Caesars Entertainment, which operates nine hotel-casinos on the Strip in Las Vegas, had a net loss for the quarter — $315 million, or 47 cents per share, for the three months ended June 30, reversing year-earlier income of $29 million, or 4 cents per share.
Adjusted earnings before interest tax depreciation amortization and rentals, a cash flow measure that filters out nonrecurring items, rose 4.1 percent to $633 million, topping the $619 million consensus of analysts polled by Zacks Investment Research.
Revenue rose 5.2 percent to $2.22 billion from $2.12 billion and topped the $2.21 billion estimate of Zacks-polled analysts. A $10 million boost from Las Vegas properties, helped by higher hotel and food and beverage revenues and an $82 million increase in net revenue related to the 2018 acquisition of Centaur, boosted Caesars Entertainment’s overall revenue in the quarter.
Caesars Entertainment bought Centaur Holdings for $1.7 billion in cash in July 2018, adding the Hoosier Park Racing and Casino in Anderson, Indiana, and Indiana Grand Racing and Casino in Shelbyville, Indiana, to Caesars’ property portfolio.
At its Las Vegas properties, Caesars Entertainment’s revenue per available room rose 6.2 percent in the quarter from a year earlier, as hotel occupancy rose to 97.5 percent from 93.9 percent a year earlier.
Several Midwest legislative moves during the quarter will poise Caesars to boost future revenue. In May, Indiana OK’d gaming legislation to let it offer table games at its Centaur properties, and sports betting at its casinos and off-track betting parlors, beginning Jan. 1.
In June, Louisiana’s governor signed a measure to allow a 30-year extension, to 2054, of the Harrah’s New Orleans operating contract if Caesars invests $325 million to upgrade the facility by 2024, adding a new hotel and restaurants.
On a less upbeat note for Caesars Entertainment, Illinois legislators in June agreed to expand statewide gambling operations. Caesars Entertainment expects business at its Illinois and northern Indiana properties to suffer.
In a statement accompanying Monday’s earnings results, Caesars Entertainment CEO Tony Rodio said his company will work to improve business as the deal with Eldorado works toward its expected 2020 close.
“As we work toward successful completion of the proposed merger with Eldorado Resorts, the management team and I remain focused on improving the company’s operations and financial profile through incremental revenue opportunities and operating efficiencies. I’m confident that the proposed transaction will create an industry-leading platform poised to succeed in our dynamic industry.”
When Caesars Entertainment and Reno-based Eldorado Resorts announced their deal to combine in June, Wall Street analysts mostly cheered.
“The deal everyone has been waiting for has finally reached the finish line,” Stifel Nicolaus & Co. gambling analyst Steven Wieczynski said told CDC Gaming Reports. “On the whole, we are constructive on the deal, as we believe it combines Caesars’ scale and geographic diversity with Eldorado’s operational expertise.”
However, some observers, notably The Motley Fool’s Travis Hoium, were wary. On July 24, Hoium noted that Eldorado will take on $15.5 billion in debt, which could prove risky if the national economy recedes.
“The debt load may not seem onerous if you look at the projected $3.6 billion in annual EBITDA after the deal is closed, which includes $500 million of assumed synergies, but we shouldn’t assume that EBITDA will remain where it is now forever,” he wrote. “If we just take the projected EBITDA of $3.1 billion without synergies and assume a 30 percent drop, the result in a recession would be $2.17 billion of EBITDA left at Eldorado and a suddenly precarious financial situation.”
When the deal with Caesars was announced, Eldorado CEO Tom Reeg said he expects the companies to sell some of the nine Strip casinos involved in the merger and some casinos in some of the 16 states where the combined the company will operate. MGM Resorts International CEO Jim Murren seemed to quash any notion that his company would pursue buying the Strip properties; he told analysts and journalists last week that his company hadn’t looked at the properties before or after the Caesars-Eldorado merger announcement.
Caesars Entertainment shares fell 15 cents, or 1.28 percent, Monday to close at $11.59 in regular trading on the Nasdaq and then fell 28 cents, or 2.2 percent to reach $11.31 at 4:30 p.m. PDT in after-hours trading. The shares are up 72.7 percent in 2019.
Follow Matthew Crowley on Twitter @copyjockey.
