Alliance stock tumbles on weak profit report

Wednesday, April 21, 2004 | 11:21 a.m.

Alliance Gaming Corp., the No. 2 U.S. manufacturer of slot machines, today reported improved earnings for its fiscal third quarter, but fell short of analysts' expectations. Its stock slumped on the news.

The Las Vegas company reported net income from continuing operations of $12.2 million, or 24 cents a share, on revenue of $116.2 million. During the same period a year ago, the company reported net income from continuing operations of $8.9 million, or 18 cents a share, on revenue of $96.2 million.

By early this afternoon on Wall Street, Alliance's stock traded at $27.71, down 10.2 percent from Tuesday's closing price of $30.85. Earlier, the stock, traded on the New York Stock Exchange, fell to as low as $26 a share, off more than 15 percent.

Wall Street analysts surveyed by Thomson/First Call projected Alliance to produce 27 cents a share.

Deutsche Bank gaming analyst Marc Falcone said today that investors had two sources of disappointment that probably resulted in the drop in the stock price.

"The two big factors were that they missed the (Wall) Street estimates and the softness in the slot machine market this quarter," Falcone said.

Falcone said in a report issued today that a soft slot machine market delayed production and affected results.

"Alliance's overall slot business was soft as the company sold 4,150 units, below their guidance of 5,000 and our estimate of 5,300 units," Falcone said. "Management indicated that a total of 1,250 machines were delayed into the June quarter on customer requests."

Falcone said the placement of recurring revenue games improved. The company installed 1,710 new units in New York racinos.

Falcone also said overall, the slot machine market outlook continues to be bright and that all equipment suppliers have a healthy outlook with emerging markets starting to develop.

But he added that Alliance has suffered from increased cost pressures as a result of the digesting of recent acquisitions.

The results reported today include one month of operations from Sierra Design Group, a Reno company that Alliance completed its acquisition of in March.

Alliance said Sierra Design Group contributed $15.2 million in revenue for March and included 590 games sold in Washington and Rhode Island as well as 890 of the units placed in New York.

Falcone said in addition to the sales, the new affiliate added 10,700 recurring revenue games in Washington and 4,200 Class II slot machines in Oklahoma and Florida.

Alliance acquired the company for $27 million in cash and 735,000 shares of Alliance gaming stock valued at $18 million. Over three years following the closing, Alliance would pay up to $95 million in equal portions of cash and stock if Sierra meets certain performance goals.

In addition to completing the acquisition of Sierra Design Group, Alliance also completed a deal to acquire MindPlay, a developer of table game technologies, for an undisclosed price and Great Britain-based Crown Gaming, which will become part of company's newly formed Bally Gaming and Systems UK Ltd. subsidiary. Terms of that deal also were not disclosed.

Last month, Alliance, whose Bally Gaming and Systems unit is one of the world's largest slot machine producers, said that a merger with Gtech Holdings Corp., a West Greenwich, R.I., company, was unlikely despite reports that Gtech was positioning itself for new deals.

Alliance, which scheduled a conference call to discuss results later in the day today, reaffirmed its earnings guidance for 2004 of $1.04 a share. In addition, the company said it remained firm that earnings per share for 2005 would hit $1.40 a share with increase demand.