Majestic Research

Associated Press

Harrah's, MGM First Quarter Profits Grow as Mergers Pay Off

By Ryan Nakashima
Published: April 27, 2006

LAS VEGAS (AP) - The world’s two largest gambling companies, leader Harrah’s Entertainment Inc. and No. 2 MGM Mirage Inc., posted higher earnings in the first quarter as megamergers from a year ago increasingly paid off.

Harrah’s said profit rose 76 percent to $182.4 million, or 98 cents per share, from $103.8 million, or 90 cents per share, from the first quarter a year ago.

The acquisition of Caesars Entertainment Inc. in June 2005 was named among the biggest reasons revenue surged 93 percent to $2.4 billion, doubling the $1.2 billion realized in the same period a year ago.

Gary Loveman, Harrah’s chief executive, said the company achieved $80 million in first-quarter benefits from combining operations - three months ahead of schedule - and raised the estimate for first-year synergies to more than $110 million.

Cumulative benefits would reach nearly $300 million by June 2007 as Harrah’s Total Rewards loyalty program begins to kick in at acquired properties, he said.

“Harrah’s is on the brink of fully realizing the value of last year’s historic acquisition, which, as you’ve heard by many measures, has gone much better than anyone anticipated,” Loveman told analysts on a conference call.

MGM Mirage said Thursday its profit in the January-March period increased 29 percent to $144 million, or 49 cents per share, from $111.1 million, or 38 cents per share, a year earlier.

Revenue rose 56 percent to $1.9 billion compared with $1.2 billion during the same period last year, due mainly to the April 2005 acquisition of Mandalay Resort Group.  Same-store sales were $1.2 billion for the quarter, up 4 percent over last year.

Chief financial officer Jim Murren bumped the annualized cost savings and revenue gains seen from the merger to $145 million from an earlier estimate of $135 million.

“I like the trend,” Murren said during a conference call with analysts.  “We’re working on a lot of initiatives, including many purchasing and information technology initiatives, which we believe will make that number continue to grow.”

He said after the call that combining operations “likely will exceed $200 million per year” as loyalty programs, room management systems and procurement savings spread to former Mandalay hotel-casinos on the Las Vegas Strip, such as Mandalay Bay, Luxor, Excalibur and Circus Circus.

Both companies’ earnings results exceeded the expectations of analysts polled by Thomson Financial.

Harrah’s earnings of 98 cents per share beat average estimates of 92 cents a share, while MGM’s earnings of 56 cents per share, after adding back 7 cents a share in one-time costs, beat expectations of 52 cents per share.

Harrah’s shares finished up $1.68, or 2.2 percent, at $79.95, while MGM shares closed up 66 cents, or 1.5 percent, to $44.60 on the New York Stock Exchange.

Analyst Matthew Jacob with Majestic Research said the reported merger benefits were higher than predicted.

“They’re really showing how powerful the synergies can be from merging those four companies into two,” he said.

Harrah’s also announced plans Thursday for a $485 million renovation and expansion of its Horseshoe Casino in Hammond, Ind., some 20 miles southeast of downtown Chicago.

The expansion, pending regulatory approval, would create a two-level riverboat by mid-2008 that more that doubles the size of the existing casino to some 108,000 square feet and adds a 2,500-seat theater and buffet on the second level.