Caesars Entertainment Corporation reported a $541 million net loss for the fourth quarter of 2016 but managed to improve its net revenues, EBITDA and EBITDA margin on a year-to-year as it eyes an exit from bankruptcy later this year.
The group reported Tuesday afternoon an increase in net revenues of 3.0 percent year-over-year to $949 million and a 10.6 percent jump in adjusted EBITDA to $250 million. Adjusted EBITDA margin also improved by 1.48 percent to 27.6 percent.
The overall loss, which translates to $3.68 per share, was attributed to a $426 million accrual pertaining to the bankruptcy restructuring – which was approved by a U.S. Bankruptcy Court in Illinois in January 2017, clearing a path for the entity to emerge from bankruptcy later this year.
On a conference call with investors, chief executive Mark Frissora pointed to $3.9 billion in net revenues and $1.1 billion in adjusted EBITDA for the full year of 2016 in saying that a strong foundation is in place for future growth once the bankruptcy process concludes.
“I’m pleased to report that Caesars capped another strong year with solid operating performance in the fourth quarter, driven by revenue growth in Las Vegas and margin expansion across the enterprise,” Frissora said. “Our fourth quarter and full-year 2016 results reflect the successful execution of our strategic initiatives, particularly our ongoing investments in hospitality and focus on operational efficiency.”
“Our performance in 2016 is a testament to the execution of our strategies and the success of the investments we have made in our people, our products, our services and our capabilities,” he emphasized. “Notably, we’ve achieved this level of success with the background noise of the (Caesars Entertainment Operating Company) bankruptcy.”
Strong revenue growth and favorable hold percentage at its Las Vegas Strip properties compensated for weaker showings at some of the company’s regional properties – specifically Horseshoe Baltimore due to the opening of MGM National Harbor and Harrah’s New Orleans, which is grappling with the effects of a recently-instituted smoking ban.
Eric Hession, chief financial officer, noted that Caesars’ Vegas properties faced two power outages during the quarter which had the effect of partially offsetting gains from improved hold percentages.
He said that projected hurdles in 2017 include inflationary cost pressures on salaries and benefits, continued renovations and effects from competition.
“We also expect ongoing room renovations across our hotel portfolio will result in greater inventory disruptions this year, when compared to the prior year given the ramp up of several construction projects,” Hession said. “Additionally, we will continue to monitor the performance of Horseshoe Baltimore as the market absorbs a new competitor.”
Frissora highlighted that Caesars’ ongoing re-investment in its Vegas hotel properties has become a low-risk, high return venture – resulting in the entity’s highest cash hotel revenue figure since 2007. He further emphasized that efficiency improvements at the individual property level and across the corporate structure have produced significant cost savings at both levels.
Moving ahead, the company says it is committed to continuing to improving and refining its loyalty and marketing programs, investing in its infrastructure – including another 8,000 hotel room renovations for 2017, streamlining its operating model and inspiring a sales and service-friendly culture internally.
One such highlight was that operational improvements and optimization in its marketing programs have reduced marketing spend as a percentage of net revenue from 27 percent in 2014 to 22 percent in 2016.
Nevertheless, investors are being urged to take a long, hard look before hopping on the Caesars train.
“The name remains one that should only be of interest to debt and special situations investors,” said Chad Beynon, a gaming analyst with Macquarie Securities.
“While the overall capital structure remains uncertain, we believe Caesars will be a better entity following the restructuring. For years, the company’s assets have been underinvested, while tight liquidity has limited (mergers and acquisitions) and Greenfield opportunities,” Beynon added.
Frissora also gave an update on potential development opportunities in North America and around the world, noting that Caesars’ project in Incheon, South Korea is “alive and well” and that the company is in strong pole position in the race to acquire an integrated resort license in Japan.
“In terms of Japan, I was in Washington (last week) and had a chance to see Prime Minister Abe, and of course talked about Caesars’ interest in Japan,” he said. “We’ve been working on Japan for 10 years. So we’ve been in the hunt. We think we’ve got a very good position there because we have the opportunity actually be the only one represented that’s not in Macau, and as you know the Japanese and Chinese sometimes look to our advantage, given the relationships of the two countries.”
All told, Frissora emphasized that the bankruptcy proceedings are in their final stretch and that the company expects to complete the process and return to normal operating status in 2017.
“We are now focused on securing approval from regulators for the plan, raising certain emergence financing and completing the merger between Caesars Entertainment and Caesars Acquisition Company,” Frissora said. “We are optimistic that all the steps will be completed and CEOC will emerge late this summer.”
