Alliance Gaming Corp. warns of losses

Friday, Oct. 1, 2004 | 10:39 a.m.

Shares of Alliance Gaming Corp. lost as much as a quarter of their value this morning as the company announced lower than expected earnings for its fiscal first quarter.

The Las Vegas company said it expects to post a loss of 9 cents to 14 cents per share. That excludes a previously announced charge of 9 cents per share related to last month's $7.4 million jury award against Alliance and in favor of competitor International Game Technology.

Analysts had expected the company to earn 10 cents per share in the first quarter.

The company blamed the decline on its slot manufacturing and slot software systems business units. It also cited transition costs related to the appointment of a new chief executive and staff restructuring.

Calyon Securities analyst Maria Rickert downgraded Alliance stock to "add" from "buy" this morning. Rickert said she suspects that higher overhead and research and development costs are more to blame for the losses.

"We had expected expenses to be high after the close of the Sierra Design Group acquisition in March 2004, but we are astounded at the size of the expense structure needed to cause a miss of this size, even if game sales and systems sales come in much lower," Rickert said in a research note to investors today.

But Deutsche Bank Securities analyst Marc Falcone said the lower earnings were expected. The company continues to experience uncertainties related to the timing of slot sales to new gaming markets, Falcone said in a separate research note.

Alliance also announced the appointment of Robert Luciano to the position of executive vice president and chief technology officer. Luciano founded and served as chief executive of Sierra Design Group, a slot maker Alliance acquired in March.

Today is the first official day in office for President and Chief Executive Richard Haddrill. Amid an earlier earnings warning and a weakened stock price, Alliance announced in July that Robert Miodunski would step down as CEO.

"At this point, we believe that Mr. Haddrill is the ideal CEO to help reposition Alliance for its next growth phase, given his strong gaming and technology background in addition to his track record of turn-around efforts at previous companies," Falcone wrote.