Slot machine giant Bally Technologies Inc. increased earnings in its third fiscal quarter despite continuing economic challenges and doubts about the company's growth prospects in multiple areas, including player tracking software.
Net income rose 5 percent for the three months ended March 31 compared with the same period a year ago and earnings per share increased 19 percent over that period, to 43 cents per share, Bally reported Thursday. The company still missed earnings expectations of 47 cents, according to a consensus estimate from Thomson Reuters.
Sales of new gambling games slipped by 1,154 units as fewer international units were sold and because of a "sluggish" replacement market in North America, the company said. Gaming operations revenue rose 15 percent to an all-time record and systems revenue rose 2 percent.
Bally spent more on payroll, advertising, legal and other expenses to support expansion into new markets. Research and development costs also rose in the quarter.
Executives touted high sales of the company's new Pro Series slot machine cabinets and said Bally's gaming operations business is holding up in the downturn. The company said it placed more than 550 Vegas Hits slots in the third quarter, second only to Cash Spin as the "fastest premium game release in the company's history."
"We are pleased with our operational and financial positioning for the future," CEO Richard M. Haddrill said in a statement. "While current industry conditions remain challenging, we have a number of opportunities, both domestic and international, that are attractive and exciting for the company."
This month Bally announced a plans to repurchase up to $550 million of the company's common stock and obtained a $700 million senior secured credit facility to fund the stock repurchase, refinance debt and generate working capital, among other uses.
Higher than expected expenses dragged down earnings during the quarter, analysts said. They were also cautious about the company's growth prospects, citing the difficult economy, challenges in forecasting sales and increased competition from slot manufacturers like International Game Technology.
"Bally does have some innovative technologies, but our checks suggest the system sales are generally driven by the same budgets as slots; we don’t expect a pickup up in either one," Goldman Sachs stock analyst Steven Kent said in a research note to investors today.
"We believe management’s commitment to an expanded share repurchasing effort reflects their conviction in the company’s long-term growth prospects," Stifel Nicolaus Capital Markets stock analyst Steven Wieczynski said in a research note today. "However, we continue to believe fierce competition within the gaming device manufacturer space, most notably IGT and its enhanced content, will likely serve to detract from ... earnings growth potential in the near term."