LV-based slot maker’s earnings up 58 percent

By Liz Benston (contact)

Thursday, Jan. 15, 2004 | 10:52 a.m.

Alliance Gaming Corp. today reported a 58 percent increase in earnings on continued demand for slot machines and software systems.

The Las Vegas-based slot machine company reported net income of $18.7 million or 37 cents per share for its second fiscal quarter ended Dec. 31. That compares to net income of $11.9 million, or 24 cents per share for the same quarter a year ago.

Excluding certain non-recurring items, Alliance reported earnings of 28 cents per share, a penny higher than analysts had expected.

Alliance shares traded this morning at $24.15, up 15 cents on the news.

The company said it expected earnings on continuing operations for fiscal year 2004 to be $1.04, down from $1.10, to reflect the reclassification of 6 cents per share in earnings from its Rail City casino to discontinued operations. Earnings also reflect the inclusion of results from the recently acquired Sierra Design Group. The company expects earnings per share, excluding non-recurring items, of at least $1.40 in fiscal year 2005.

In November Alliance announced plans to purchase Reno-based Sierra Design, which makes bingo-based slot machines for Indian casinos and state lotteries, for as much as $191 million. The deal is expected to close in the first half of the year. In December Alliance said it would sell its Rail City casino in Sparks to the Sands Regent for about $38 million as part of a strategy to sell off non-core assets.

The company sold fewer slot machines during the quarter than it had expected but that was offset by higher sales prices for new games and strong sales of software systems, Deutsche Bank Securities analyst Marc Falcone wrote in a research note today.

"We maintain our 'buy' rating on the shares, particularly given the positive benefits of the SDG transaction, the potential for the proliferation of gaming" and relatively low price to earnings ratio compared to competitors International Game Technology, WMS Industries Inc. and Shuffle Master Inc., Falcone said.

The company reported a 30 percent increase in cash flow, to $34 million. Revenue rose 11 percent, to $108.6 million.

The company's Bally Gaming and Systems slot unit drove performance. Revenue rose 11 percent to $96.3 million and cash flow jumped 27 percent to $32.6 million.