Bally admits 2010 no banner year for slots
Bally Technologies has confirmed the rumors that Wall Street has been spreading about the slot machine sector: 2010 is not going to be the revenue-producing panacea industry insiders were predicting.
Las Vegas-based Bally told analysts and investors last week that its earnings per share for the fiscal year could be up to 12 percent lower than the company previously forecast.
Bally blamed the declining profits on slower-than-expected slot machine sales for the first three months of the year. Casino operators are still holding back on replacing aging gaming floors with new slot machines, a sign that economic recovery is still a future subject.
Some Wall Street types wondered why the admission took so long.
“In our view, the body language from all of the equipment suppliers over the recent past has been cautious,” Oppenheimer gaming analyst David Katz said.
Following November’s Global Gaming Expo, the news was upbeat. Increased slot machine sales were being projected for 2010, based on the positive reviews given to the gambling products displayed by the major manufacturers and reactions from casino operators.
However, it quickly became apparent that the prognostications were overly optimistic.
Goldman Sachs, in its annual survey of casino managers, found nearly half of all U.S. casinos have rapidly aging slot floors. But corporate bosses are not in any rush to replace the games.
Joel Simkins of Macquarie Securities joined a parade of analysts who reacted negatively toward Bally’s news. But he was skeptical about the reasons behind the announcement.
Simkins said Bally is facing competition from other manufacturers, including a “re-emergence” of International Game Technology, WMS Industries and “continued encroachment” by Japanese-based Konami Gaming.
“The playing field is crowded and it would be hard to grow market share,” Simkins said.
Bally tried to soften the news. On the same day, it said it was selling its small Mississippi casino to Isle of Capri for $80 million. Bally also struck a deal with Isle of Capri to outfit 10 of the regional operator’s locations with casino management systems and server-based gaming products.
The damage, however, was already done.
“Investor expectations for 2010 domestic replacements remain low after subdued outlooks,” Stifel Nicolaus gaming analyst Steven Wieczynski said. “Fiscal 2011 should be a catalyst due to new jurisdictions and better spending trends from operators.”
Howard Stutz’s Inside Gaming column appears Sundays. He can be reached at hstutz@reviewjournal.com or 702-477-3871. He blogs at lvrj.com/blogs/stutz.