While its larger brethren are enjoying tremendous sales growth from the ever-growing Macau gaming mecca, Caesar's Entertainment (NASDAQ: CZR ) is having the opposite luck. Regional domestic operations are a drag on the company's earnings, and even the glitzy Vegas strip properties aren't enough to bluff analysts and investors. With profits dipping down 50% from the prior year, the gaming company has to take continued writedowns on the value of its regional assets in Atlantic City and elsewhere -- nearly $1 billion in this quarter alone. There are, however, two bright spots for the company that should help stabilize things in the long run.
For Caesar's fiscal third quarter, the company brought in $2.18 billion. The number was a hair lower than the previous year, and short from analysts' estimates of $2.24 billion. The reason was mainly lower traffic in the non-Vegas properties, as well as earnings lost from the sale of an asset in Uruguay.
Loss from continuing operations suffered far worse, with a net loss of $6.12 per share, compared to Wall Street estimates of a net loss at $1.28 per share. It really wasn't as bad as the headline numbers suggest, though, as the losses were purely a matter of non-cash charges and asset revaluing. On a pure operating basis, income ticked up a little over $91 million from the year-ago quarter. Las Vegas casino revenues actually grew 5%, due to increased traffic and gains from food and beverage sales.
Helping offset the regional asset difficulties, the company's cost-cutting measures resulted in $65 million in savings for the third quarter alone. Investors can expect the trend to continue.
The market reacted strongly to the missed expectations, sending the stock down nearly 6 points. Is this an opportunity for investors, or does Caesar's have more trouble on the way?
Asset sales, new ventures
Caesar's Entertainment unloaded its Uruguay casino, it recently closed the sale of a $420 million golf facility in Macau, it sold $360 million of assets to its joint-venture online gambling business, Caesar's Growth Partners (set for its own IPO in the coming months), and the company recently raised an additional $200 million on the equity markets.
It would be great if the company could rid itself of the regional gaming properties in the Northeast and Mid-Atlantic, but the current prices would be too depressed. The regional gaming business in those areas is far too crowded, and many of the players, big and small, are taking hits from lack of demand and a still-tepid consumer spending environment.
In the meantime, though, the company has plenty of cash from its asset sales and the Las Vegas operations to make strategic investments in the future.
The $2.2 billion market cap is almost entirely made up of the company's cash reserves -- $1.7 billion in cash and $215 million in revolving credit. Caesar's management recently refinanced its debt, with no upcoming maturities until 2018.
Caesar's has had its fair share of issues, and there may be more on the horizon, but value-oriented investors should take a closer look. The stock is trading at a substantial discount to the industry big guns: Las Vegas Sands and Wynn Resorts. At the same time, it isn't going to grow at near the rates without a Macau/Cotai presence, but the company does have its core cash cow: the Vegas casino. Depending on how the online gambling venture goes, this may be a compelling turnaround bet.
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