Caesars' Survival Hopes Are Dwindling

How long can Caesars Entertainment (NASDAQ: CZR  ) really expect to survive reporting numbers like this? Second-quarter net revenue was down 0.3% to $2.16 billion, adjusted EBITDA fell 8.2% to $470.5 million, and net loss was $212.2 million, or $1.69 per share. To make matters worse, net debt stood at $19.3 billion, and interest expense was more than EBITDA at $540.1 million.  

Caesars is moving forward with a plan to offer $1.18 billion in stock for a spinoff, which will help the balance sheet, but the company will give up Planet Hollywood and basically all potential for growth, including online gaming. When the spinoff is done, investors will still be left with a company with falling revenue and $18.1 billion in net debt.

A host of challenges for Caesars
The sheer debt load is bad, but when every major operating segment is deteriorating, you have serious problems. Atlantic City is in shambles now that Pennsylvania has taken over as the second largest gaming state next to Nevada. Worse yet, Las Vegas is on a path to recovery, but Caesars saw revenue fall 4.5% in the second quarter. Strong results from Wynn Resorts (NASDAQ: WYNN  ) and Las Vegas Sands (NYSE: LVS  ) on The Strip show that the high end is working in Las Vegas while the lower end of the market is still very weak.

But it's regional gaming that posts the biggest long-term challenge for Caesars. Non-Las Vegas or Atlantic City casinos account for the largest segment for the company, and the long-term trends don't look good. Caesars' revenue was down 1.1% but across the industry companies have struggled. Pinnacle Entertainment, Penn National, and Ameristar all saw revenue fall at casinos year over year, and the only way to grow is by adding more supply, which is killing profitability at existing casinos.

The only way to play gaming
Wynn Resorts and Las Vegas Sands now both generate most of their revenue in Macau, and that's really the best way to play gaming right now. Even the resorts they have in Las Vegas are doing better than Caesars right now. Caesars just comes with too much risk, and if investors want the company's online gaming exposure, they can buy the spinoff when it comes public.

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  • Report this Comment On August 01, 2013, at 11:56 AM, spokanimal wrote:

    Even Caesar's better resorts are being dragged down by their 3-star resorts that are struggling to prevent downgrades from there. People who visit vegas to spend money don't do it at 3 star resorts like Balleys.

    I've seen precious few instances in business where quality wasn't king. There's never been more of a sure bet than the notion that Las Vegas Sands will surpass SJM in more than just the EBITDA category of metrics. We all remember how dominant Nokia was before they decided to sit out the smart phone revolution, and the folks with the flip phones who stay at Flamingo would still rather pull a slot handle at Venetian or Bellagio. Show me somebody who would rather place an elderly loved one in a Beverly facility ahead of a Manor Care facility, and I'll show you somebody on a severely depleted budget... or medicaid.

    In gaming, you begin with foundational tenets, like quality and deft finances, then look for the vision, like Wynn's creativeness and LVS's time-to-market. Finally, you look for bold assertiveness and a rock-solid business plan, with an eye for the bottom line...

    ... meaning somebody ELSE's art hanging in Bellagio instead of tying up your shareholders' investment capital in a bunch of expensive art that has nothing to DO with running a successful resort...

    ... and you're left with a guy who's lost it and made it so many times that you couldn't ASK for more wisdom in the guidance he provides his company... and the intelligence and quick action that's required to get rid of a dangerous character like Steve Jacobs before he could do even more damage.

    Spok

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