Caesars Entertainment Inc. reported a surprising loss Tuesday, sending shares lower in after-hours trading, but the stock rebounded after executives outlined plans to reduce a massive debt load that includes the sale of a casino on the Las Vegas Strip.
Caesars
CZR,
on Tuesday reported a third-quarter loss of $233 million, or $1.10 a share, after posting a loss of $6.09 a year ago. Net revenue totaled $2.69 billion, up from $1.38 billion a year ago. Analysts on average expected a profit of 16 cents a share on net revenue of $2.66 billion, according to FactSet.
Shares dropped as much as 8% in after-hours trading immediately following the release of the results, but bounced back later in the extended session as executives held a conference call. The stock closed with a 0.3% decline at $111.74, and was bouncing between break-even and a loss of about 2% late in the extended session.
Caesars has grown since the COVID-19 pandemic began, thanks to its merger with Eldorado Resorts and acquisition of William Hill, but that loaded the company with debt. Caesars is addressing some of those concerns with plans to sell William Hill’s non-U.S. business for roughly $3 billion and also selling shares in NeoGames SA
NGMS,
that were also obtained in the William Hill transaction.
Executives outlined that cash coming in during a conference call Tuesday afternoon, while also pushing up the timeline to sell one of its properties on the Las Vegas Strip. Caesars executives said in August they planned to sell a property in 2022, but moved that timeline to “early 2022” on Tuesday while also planning to restructure some debt.
“And so, if you add all of those up, we should have well in excess of $5 billion of cash to deploy in 2022,” independent director David Tomick said in the conference call. “Some of that will be spent in the digital business, some of that will be spent on capital projects that drive [return on investment] in the portfolio. But the vast majority of that cash is going to go to pay down debt where we can be in a position to be pushing almost half of our conventional debt off the balance sheet and ultimately reducing our cash interest expense by the end of 2022 to $300 million or $400 million a year less than it was when we closed the transaction.”
In early September, Caesar’s disclosed preliminary results for the first two months of the quarter, July and August, that showed $1.8 billion to $1.85 billion in net revenue and $676 million to $744 million in adjusted Ebitda. Analysts, though, were concerned that the trajectory changed in the third month of the quarter.
“While we think many of Caesars’ markets were strong in September, non-recurring events (e.g. wildfires in Tahoe and flooding in New Orleans) along with increasing interactive investment likely had a meaningful impact on the quarter’s trajectory,” Truist analysts wrote in an Oct. 22 preview of casino and gambling earnings reports.
Executives did admit the natural disasters hurt business in the quarter Tuesday.
“On the brick-and-mortar side, if Ida didn’t hit New Orleans and we didn’t have the fire in Tahoe, we would have done $1.1 billion of brick-and-mortar Ebitda in the quarter,” Tomick said. “We had an extremely strong quarter, demand remains particularly robust, and in regards to New Orleans and Tahoe, Tahoe has pretty quickly recovered back to above 2019 levels, not quite as strong as it was pre-fire, but continuing to build.”
Truist analysts increased their price target on Caesars stock to $140 from $125 and maintained a buy rating despite concerns ahead of the print. “Beyond any one-timers in the quarter, we see Caesars as a potential interactive winner with their strong omni-channel positioning,” they wrote.
Caesars stock has been flying higher as patrons have returned to casinos in the past year, rising nearly 140% in the past 12 months as the S&P 500 index
SPX,
gained 39.4%.
This post was originally published on Market Watch
