Anchor Gaming earnings strong, but stock falls

John Wilen

Thursday, Oct. 22, 1998 | 11:44 a.m.

Shares of Anchor Gaming fell sharply this morning amid concerns the company's new Cashball machine is not selling as well as expected, and that lower interest rates will cause Anchor to earn less on bonds it holds to pay off multimillion dollar progressive jackpots.

Las Vegas-based Anchor shares were off $6.88 in early trading, to $53.

The drop came despite a strong Anchor earnings announcement Wednesday that met analyst estimates.

The developer and operator of gaming machines reported profits of $19 million, or $1.48 per share, in the quarter ending Sept. 30, up from $16.7 million, or $1.25 per share, earned in the same quarter one year ago. Revenues jumped from $54.5 million to $64.6 million.

Anchor told analysts to reduce earnings forecasts during a conference call Wednesday. The company said sales of its popular Wheel of Fortune machine have leveled off, and that its latest Cashball machine is not living up to expectations.

"Cashball has been a disappointment," said Joe Coccimiglio, an analyst at Prudential Securities.

Cashball's problems are largely due to the unexpected success of WMS Industries' Monopoly machine, said Coccimiglio.

Prudential Securities today downgraded the stock to accumulate from strong buy and reduced its 1999 earnings forecast by about 20 cents per share. Also today, Merrill Lynch cut Anchor shares to a short-term neutral from an accumulate, but continued to rate the stock a long-term accumulate.

But analyst Andrew Zarnett of Ladenburg Thalmann upgraded the stock to buy from long-term buy.

Wednesday's pessimistic forecast somewhat contradicts reports recently released by Coccimiglio and Jason Ader of Bear, Stearns. Both reports argued that while increased competition may hurt some casino operators, gaming machine makers would benefit from the ensuing mad scramble by gaming companies to beat each other to the casino floor with the latest and greatest machines.

Coccimiglio said that logic remains sound, noting that Anchor is still expected to do well, just not as well as expected.

"We're still recommending it," Coccimiglio said.

As part of its earnings announcement, Anchor said it will repurchase an additional 640,400 shares of common stock, raising the total number of shares the company plans to repurchase to 1 million. Anchor previously said it would repurchase 359,600 shares. Under that plan, the company bought 180,000 shares during the quarter.