Alliance reports decline; still beats analysts’ estimates

By Liz Benston (contact)

Wednesday, Jan. 15, 2003 | 11:12 a.m.

Alliance Gaming Corp. reported a 7 percent decline in earnings for the second fiscal quarter ending Dec. 31 but still managed to beat Wall Street analysts' profit estimates for the company, driven by strong performance in its Bally slot-making unit.

The Las Vegas-based manufacturer also raised its earnings target for fiscal 2003 to at least 87 cents per share -- on a fully taxes basis -- from its previous estimate of 84 cents. That estimate compares to 70 cents per share, fully taxed, in fiscal 2002.

Profit fell to $11.9 million in the quarter from $12.8 million for the same period a year earlier. On a per-share basis, earnings fell to 24 cents from 27 cents. Analysts' average estimate for the company was 21 cents per share.

Assuming federal income taxes had been recognized for the year-ago quarter ended Dec. 31, 2001, earnings would have risen 43 percent, from $8.3 million in the previous quarter. Earnings per share would have been 18 cents for that quarter, the company said.

Beginning July 1, 2002, Alliance Gaming began recognizing federal income tax expense based on 35 percent of pre-tax domestic income.

Revenue increased to $173.6 million from $150.6 million during the second quarter.

As in previous quarters, the company's Bally Gaming and Systems slot machine business unit boosted financial performance. The unit reported a 67 percent increase in revenues, to $86.6 million, driven by a 66 percent increase in new unit sales and a 106 percent increase in cash flow for the quarter, the company said.

Cash flow -- typically defined as earnings before interest, taxes, depreciation and amortization -- in the business unit was $25.5 million in the second quarter, a record.

Cash flow in its other business units fell 36.4 percent during the period. Slot route operations declined to $5.8 million from $6.6 million, casino operations dropped to $4.6 million from $5.7 million and its German manufacturing unit, Bally Wulff, saw cash flow fall to $1.1 million from $5.8 million in the previous quarter.

Shares of Alliance Gaming have slid in recent days after negative news hit some casino operators. But shares rose more than 9 percent before noon trading today, to more than $16.

Some analysts remain bullish on Alliance even as they have slashed ratings on casino operators in recent months, noting that the company is poised to benefit from the expansion of legalized gambling as well as an increased replacement cycle for older games.

"The quarter's results were better than expectations and we believe the company continues to make solid progress in its games division," Deutsche Bank casino market analyst Marc Falcone wrote in a research note today.

"We continue to recommend (Alliance) shares, as we expect the replacement cycle for slots to accelerate, (the company) to continue to gain share from weaker competitors and its newest technologies will allow it to increase margins," Goldman, Sachs & Co. analyst Steven Kent wrote.