Within a one-hour time frame, Caesars Entertainment turned the casino company’s positive second earnings announcement Wednesday into a nearly 20 percent drop in its stock price.
On its conference call with analysts and investors, Caesars executives took a cautious approach toward the company’s prospects in Las Vegas looking into the rest of the year. Company executives reduced guidance toward future earnings and revenues based on weakness at its Las Vegas Strip resorts during July.
Immediately, the company’s stock price on the Nasdaq was down up to 25 percent.
Trading was halted on shares of Caesars temporarily Wednesday as investors fled from other casino stocks as well. Some of the sell-off was due to disappointing revenue growth numbers out of Macau. Caesars does not own a Macau casino.
After the Caesars call ended, shares started to come back in value somewhat. The company ended the trading day at $9.62, down $1.68 or 14.82 percent. More than 98 million shares of Caesars were traded Wednesday, eight times the average daily volume.
Caesars CEO Mark Frissora recognized the drop and the tone of questions from analysts and addressed the sudden stock price dip.
He said a large portion of the company’s stock is owned by “short-term” investors who gained shares following the completion of Caesars bankruptcy reorganization last October.
“Many of our shares are not owned by people in it for the long-haul,” Frissora said on the call. “We have had record highs and record initiatives. I’m excited about the prospects of the company and those investors who stick with it.”
Frissora blamed any expected third quarter declines for the company on competitors cutting Strip hotel room rates, forcing the company to slice its own prices at its Strip brands, such as Harrah’s, Bally’s, Paris, Planet Hollywood and Caesars Palace.
He said weakness is also being driven by a decline in events on the Las Vegas Strip. He said MGM Resorts International’s T-Mobile Arena and Caesars’ Colosseum will host 29 fewer events in between July and September compared with the same three months last year,
Frissora said Las Vegas group bookings for September and the fourth-quarter looked strong and said the weak numbers for July and August weakness was just a blip.
“It is not that we have weakness in Vegas,” Frissora said. “I still think Vegas is a very strong market.”
Initially, Caesars said Wednesday it reversed a second quarter net loss and Wall Street focused on results that showed the casino giant’s reinvestment in its Las Vegas operations were beginning to pay off.
Caesars said its net income for the quarter that ended June 30 was $29 million, reversing a net loss from a year ago that considered restructuring charges associated with the company’s bankruptcy reorganization.
Total net revenues more than doubled to $2.12 billion for the quarter, which included the inclusion of results that was previously part of the bankrupt restructured entity. Caesars emerged from bankruptcy late last year.
Frissora said in a statement the company’s nine Las Vegas Strip-area resorts had strong financial performances in both gaming and hospitality areas. Frissora said Caesars had renovated 60 percent of its 23,000 hotel rooms in Las Vegas since 2014.
“The results also reflect balanced, robust cost management and growth strategies,” Frissora said.
Jefferies gaming analyst David Katz told investors the company’s renovated Las Vegas properties, “appear to be capturing appropriate returns.”
Last week, Oppenheimer said ahead of the company’s earnings that Caesars can “separate from its peers and be viewed as a highly attractive investment” with a strong performance in Las Vegas.
On the Las Vegas Strip, the company’s net revenues were just under $1 billion for the quarter.
Gaming revenue in Las Vegas grew 10.7 percent, driving by significant year-over-year baccarat growth, the company said in a statement. Revenue per available room, a non-traditional measurement that analysts use to gauge profitability, grew 3.5 percent to $136 per room, the company said.
“Caesars remains positioned for sustained revenue and (cash flow) growth,” Frissora said.
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
