Machine glitch hurts WMS

Thursday, Aug. 9, 2001 | 11:02 a.m.

Slot machine maker WMS Industries Inc. of Chicago reported net income before one-time charges of 42 cents per share for the quarter ending June 30, a 17 percent increase over the year-ago quarter.

The earnings beat consensus analyst expectations by 2 cents per share. Net income before one-time charges was $13.5 million, up 22 percent.

Those one-time charges, however, totaled $23.4 million, primarily from an executive buyout agreement. When one-time charges were included, WMS reported net income of $3.2 million, or 10 cents a share, down significantly from $11.3 million, or 36 cents per share, in the year-ago period. Revenues also fell 3 percent to $65.8 million.

Revenues fell because slot sales were off 20 percent to $39.8 million. WMS said the reason was the company was devoting its resources to fixing software "anomalies" in slots now installed across the country. The glitch, discovered several months ago, allowed the bill acceptors of some WMS machines to be manipulated. The effort to fix the slots has drawn resources away from sales and research efforts, and will likely be a drag on earnings through the next two quarters, WMS Chief Executive Brian Gamache said.

Offsetting the sales decline was a 44 percent increase in participation slot revenue, which rose to $26 million. WMS attributed this to increased demand for leased games such as Monopoly.

After the earnings report was released, Bear Stearns gaming analyst Jason Ader lowered WMS from "buy" to "attractive," based on expectations of flat earnings and lower slot sales for the next two quarters. The shares are unlikely to move much until earnings growth resumes again, Ader said.

WMS stock fell nearly 13 percent to $18.70 this morning.