Alliance Gaming results will disappoint

John Wilen

Friday, Oct. 30, 1998 | 11:49 a.m.

Alliance Gaming Corp. said it will post a loss of 8 to 10 cents per share for the quarter ending Sept. 30. Analysts had expected break-even results, or no per-share gain or loss.

Additionally, in the quarter ending Dec. 31, Alliance will miss earnings estimates of 3 cents per share by 4 to 6 cents, meaning the company will post a loss of 1 to 3 cents.

The declines are a result of fewer gaming machines sold worldwide and continuing delays in the rollout of new products.

"Our board of directors and management are strongly committed to the success of our strategy, as evidenced by the continued pattern of insider buying of our common stock over the past year," Morry Goldstein, Alliance's president and chief executive, said in a statement.

During August and September, as shares of Alliance Gaming Corp. slid with the rest of the gaming industry, a group of Alliance directors and senior executives went on a two-month buying binge, snapping up 466,500 shares -- or 1.4 percent of the company's 34.3 million outstanding shares -- at prices ranging from $2.63 to $3.26 per share.

The August and September buyers ranged from Alliance director Joel Kirschbaum, who led the activity by acquiring 196,092 shares; to director Andre Jacques, who bought only 4,500 shares. Others included director Anthony DiCesare, who acquired 122,554 shares; director Martin Topfer, 98,043 shares; Goldstein, 29,408 shares; director David Robbins, 11,000 shares; and Scott Schweinfurth, the company's chief financial officer, who bought 4,903 shares.

The officers acted during a window of time in which the company allowed insiders to buy and sell stock.

"The purchases started a couple days after we announced our results for the third quarter," said Schweinfurth. "The window ran until the end of September."

Most of the buys were made on the exact same days. In all, the officials bought shares on 19 separate days from Aug. 24 to Sept. 23.

However, the August-September window was not the only time in the past year Alliance insiders have bough shares. Several officials also acquired shares during buying windows in late 1997 and early 1998, bringing the total number of shares acquired by Alliance insiders over the past year to 510,900, or 1.5 percent of the company.

Over that time, most of the officials more than doubled their Alliance holdings. The exceptions were Robbins, who increased his holdings by 30 percent, and Kirschbaum, who increased his holdings by 29 percent.

According to Schweinfurth, the directors and executives are buying because they feel the stock is undervalued.

"The group believes in the long-term strength of the company, and believes that it represents a good value," said Schweinfurth.

Alliance stock, which traded as high as $6.63 in October, 1997, plunged as low as $2 in early October.

"It certainly looks like they're reacting to an extremely low stock price," said Stacey Griffin, an analyst at CDA Investnet, a Fort Lauderdale, Fla. firm that specializes in analyzing insider trading. "The fact that they're buying at lower prices shows they think the selling has (sent the stock) below where they expected."

Whether the insider buying will help turn the tide on Alliance's stock remains to be seen. It has rebounded a bit since its low, but fell 31 cents in trading Thursday to close at $2.63.

Two prominent analysts recently released reports favorable to the gaming machine industry. The analysts, Jason Ader of Bear, Stearns, and Joe Coccimiglio of Prudential Securities, see continued strong demand for gaming machines as casinos compete to come up with the next "hot" slot machine.

Las Vegas-based Alliance manufactures slot and video gaming machines under the name Bally Gaming.

Ader projects Alliance will turn things around and post earnings, rather than losses, in the quarters which end in March and June, 1999.

"Our outlook for the second half of fiscal 1999 has not changed, as we anticipate an improvement in all business sectors," said Goldstein.

While the buying activity may indeed signal confidence in Alliance's future, Griffin cautioned that insiders sometimes try to affect their stock by engaging in high-profile buying.

"Maybe they know that they're being watched," Griffin said.