Regional Gaming Continues to Sink Caesars Entertainment
There are small slivers of hope for Caesars Entertainment , but for a company already struggling with a hefty debt load, it's going to be a hard road to long-term viability. The company's third-quarter earnings showed some improvement in Las Vegas, but that was overshadowed by weakness in regional gaming, a consistent theme for the company.
For investors, the challenge continues to be growth. Overall, revenue fell 0.7% to $2.18 billion last quarter and the company's net loss nearly tripled to $637.5 million. That includes a noncash intangible and tangible asset impairment charge of $930.9 million.
The good news is that adjusted property EBITDA rose 4.9% from a year ago to $508.0 million, which still wasn't enough to pay for the company's $563.0 million interest expense, which I'll cover more below.
After watching Wynn Resorts and Las Vegas Sands grow the top end of the market after the recession, it looks like the mid-to-lower end of the Las Vegas market is starting to pick up. Caesars' Las Vegas operations saw a 5.2% increase in revenue and a 35.7% jump in EBITDA to $222.4 million. Below I've compared that growth to what we've seen at Las Vegas Sands and Wynn Resorts.
Company | Casino Revenue Growth | Hotel Revenue Growth | Food and Beverage Revenue Growth | Overall Revenue Growth |
|---|---|---|---|---|
Caesars | 2.9% | 5.4% | 5.3% | 5.2% |
Las Vegas Sands | (2%) | 4.9% | 22.2% | 2.9% |
Wynn Resorts | 3.9% | 5.1% | (2.7%) | 1.1% |
Source: Company earnings reports.
One of the big drivers of revenue growth was Caesars starting to charge resort fees, which most other resorts in Las Vegas did previously. This gives a one-time boost to revenue, so it may skew that figure higher.
Regional gaming continues to struggle
Las Vegas is performing well, but the real concerns I have about Caesars come from regional gaming. Atlantic Coast revenue dropped 11.7% in the quarter and EBITDA was down 22% from a year ago as Atlantic City continues to decline.
The company's "Other U.S." region, including Kansas City, Biloxi, and New Orleans, saw revenue fall 4.6% to $744.8 million and EBITDA drop 19.1% to $162.3 million.
These two regions actually account for 50% more revenue than Las Vegas, so when they struggle, Caesars struggles. Add in the fact that Caesars is spinning off Planet Hollywood to its new growth company, and what's left will be in steady decline.
Debt drowning Caesars
With revenue down overall and regional gaming struggling, investors need to consider what the company owes to creditors. Net debt to end the quarter was $19.5 billion, which was up from $18.8 billion to start the year.
During the quarter, Caesars extended several debt maturities, but doing this comes with a price. Interest expense was up 9.2%, or $47.2 million, in the quarter as a result of the longer maturities.
Higher debt and higher-interest expense will drag Caesars down unless it can grow the top and bottom line long term.
Foolish takeaway
Caesars' growth spinoff may be worth considering when it hits the market early next month, but the legacy company is in a lot of trouble. Operations aren't improving and debt continues to grow, which makes this a "hands off" stock in my eyes.
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The article Regional Gaming Continues to Sink Caesars Entertainment originally appeared on Fool.com.
Fool contributor Travis Hoium manages an account that owns shares of Wynn Resorts, Limited. 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.
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