Caesars' Earnings Look Terrible, but You Might Want to Bet on This One Highlight

With a drop in casino earnings resulting in a 50% decline in income in comparison with the year-ago period, this quarter look pretty bad for Caesars Entertainment. However, there may be one highlight in these earnings that could lead to future profits.

May 12, 2014 at 8:10PM

Ceasars Background
Caesars in Las Vegas Photo: Caesars Entertainment

Caesars Entertainment (NASDAQ:CZR), which released its first-quarter 2014 earnings on May 7, is not looking so good. With casino revenue down over 8% compared to the first quarter of 2013, which caused the company's total income to drop over 50%, it seems to be a losing bet for investors. While competitors such as Las Vegas Sands (NYSE:LVS) and Wynn Resorts (NASDAQ:WYNN) have posted massive gains recently, Caesars doesn't seem to have much hope. However, don't write it off completely just yet -- there is one point in Caesars' first-quarter earnings that might make this company a potential bet.

The highlights from Caesars Entertainment's earnings:

  • Casino revenue down 8.5% year-over-year
  • Net revenue for the company down 1.9% year-over-year
  • Income down over 50% year-over-year
  • Revenue from hospitality up, providing some relief for the casino decline
  • Announced plans for stock listing and "significant deleveraging"

Ceasar Logo

During the earnings call, Caesars Entertainment CEO Gary Loveman said that "Strategic investments in Las Vegas over the last few years are beginning to bear fruit... As additional assets come on-line later this year and into 2015, we are excited about Caesars' prospects in Las Vegas." Unfortunately, he also claimed that bad weather led to declined visitation in Q1, which negatively affected the company. I'm sure I'm not the only investors tired of hearing "bad weather" as a catch-all excuse for poor operations. But read on Foolish investors, there may be a nugget of gold in these earnings yet.

The only major casino company posting a loss
Net revenue for Caesars Entertainment declined 1.9% in comparison with the year-ago period. The company mainly attributed the loss to the 8.9% decrease in casino revenue. However, it saw some relief in revenues thanks to gains in both hotel and hospitality services, where room revenue jumped over 10% despite a flat occupancy rate, and a small bump from the social and mobile gaming operations that the company runs.

What is really troubling for the company is that its income dropped over 50%. Compare this to the results of Las Vegas Sands, which led the field with first-quarter 2014 revenue of a record $4.01 billion, up over 21% year-over-year, and nearly 50% EBITDA growth. The reason why Las Vegas Sands had so much more success than Caesars did is primarily Asia, as the company generates 88% of its global revenue from Macau and Singapore. Wynn Resorts gets 75% of its revenue from Macau, and subsequently also posted a revenue increase of nearly 10% year-over-year.

Lvs Resorts

Caesars is still the industry leader... in the amount of debt it holds
Caesars Entertainment has had the highest debt load in the industry for a long time. However, the company is making headway in its attempts to restructure and pay down this debt. Last year, the company announced that it would work with Lazard Ltd, an investment bank, on financial restructuring. The company had $27 billion of debt one year ago, and its debt load currently sits at around $24 billion with current liabilities excluded.

However, Caesars is continuing to take action. Last week, the company announced an action to position its subsidiary, Caesars Entertainment Operating Co., for a stock listing. The sale of 5% of CEOC's equity to institutional investors is a good start. Loveman said that "When completed, today's actions will remove all of CEOC's 2015 maturities so that CEOC will have no significant maturities until 2016, and we intend to now turn our attention to extending the 2016 and 2017 maturities." This kicks the ball down the road a little, but is it enough to open up expansion opportunities?

Gary Loveman

Caesar Entertainment CEO Loveman has let the company's debt get out of control, limiting its expansion opportunities. Photo: ReviewJournal

Could this "significant deleveraging" mean more opportunities for Caesars?
In 2012, Caesars sought to enter the South Korean market, following the government's decision to finally allow casinos to operate in the country. Most analysts expected the bid to be a sure win. Unexpectedly, the South Korean government declined the bid at the last minute in summer of 2013.

Analysts close to the matter agreed that the likely reason was the company's huge debt load. This spurred the company's decision to sell its Macau property (which was not operating a gaming business anyway) to pay down some of its long-term debt.  

Macau Skyline

Macau's massive and growing skyline. Photo: ChinaTourAdvisors

With a denied bid in South Korea and then the sale of its only property in Macau, the company now has no Asian holdings. While Las Vegas Sands and Wynn Resorts are reaping huge rewards from Asian gaming, Caesars was left with the excuse of "adverse weather" as a reason for a 50% decline in income. CEO Loveman has said that not entering Macau was the worst mistake the casino has ever made.

The one thing that could make me want to bet on Caesars Entertainment: Asian Expansion
Things may start to pick up again. As the company continues to fight to get its debt down, there was one nugget of hope in Caesars' earnings call that could indicate a major boon in the coming years:

"We are also looking forward to developing an integrated resort in South Korea with our partners there, a promising market given its proximity to China."

If Caesars really can get back into the running for an Asian casino, this could be the start of a turnaround in the company's prospects. A resort in South Korea, which on its own would be mildly exciting, could also mean more opportunity for expansion into Japan, which should get investors really excited.

Japan is said to be the next gaming growth market, which will beat out Singapore to become the second-largest gambling site in the world behind Macau. While casinos remain forbidden in the country, the government will vote on legislation in the coming months on whether casinos can begin building in Japan. Nearly all analysts expect that the vote will pass. In fact, casinos companies are already talking with officials in Japan as they prepare plans for their bids.

Caesars met with Osaka officials late last year to discuss plans for investment in Japan, if allowed, which included talks with local potential partners such as gaming machine makers Konami and Sega Sammy Holdings. However, Caesars is not the only one preparing to bid. Las Vegas Sands CEO Sheldon Adelson has already said that he would invest as much as $10 billion to win a bid in Japan if needed. Other companies, such as Wynn Resorts, are also preparing to fight for a spot.

Foolish Takeaway: Is this one nugget of hope enough to make a bet?
This has been a tough quarter for Caesars Entertainment, regardless of the poor weather conditions. With no significant international holdings, the company's huge income decline provides evidence that it did not make the bet that it should have on Asia, a bet that is spurring Las Vegas Sands and Wynn Resorts to record-setting revenues.

However, because the stock has been so beat up because of its lackluster performance over the last few years, one game-changing event, such as the company finally getting an Asian presence, could be just the kind of thing that could give long-term holders a nice return. That is, if this kind of event comes to fruition. The Japanese gaming market is ready for big profits, but Caesars will still have to prove itself to get a spot in Japan. With tough competitors also vying for spots, this might still be a bet with very low odds. 

The biggest thing to come out of Silicon Valley in years
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now... for just a fraction of the price of AAPL stock. Click here to get the full story in this eye-opening new report.

Bradley Seth McNew owns shares of Las Vegas Sands. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers