Analysts, investors tap WMS on shoulder

Slot machine maker WMS Industries must feel like the prettiest girl at the school dance. In a room full of ugly ducklings, the Waukegan, Ill.-based company is getting all the attention.

A day after WMS said its third-quarter earnings jumped 34 percent from a year ago, at least eight Wall Street analysts heaped praise upon the company. And those are just the reports that landed in my e-mail inbox.

“Although the outlook for the casino industry has deteriorated over the past several months, the performance of WMS has continued to improve,” wrote Oppenheimer’s David Katz.

WMS grew revenues 4.6 percent in the quarter. But sales margins were key to WMS’ earnings.

The company sold about 1,300 fewer slot machines than it did a year ago, but for an average sales price of $14,854. A year ago, the price for a game averaged $12,579.

Credit was given to a new slot machine platform that can network numerous games and titles.

WMS’ management, namely, Chairman and Chief Executive Officer Brian Gamache, were lauded.

“We are impressed with the company’s ability to drive sales and margins, even while some of its customers are struggling due to the economy,” wrote Janney Montgomery Scott analyst Brian McGill.

Investors responded with their wallets. Shares of WMS rose 15 percent the day after earnings were reported.

WMS is viewed as battling Bally Technologies for the title of the casino industry’s second-largest slot machine provider behind International Game Technology.

IGT bosses have admitted the company has lost market share in the past 18 months. The economic downturn and falling gaming revenues have reduced the amount of money casinos are willing to spend on new slot machines.

A few years ago, WMS was struggling financially. Many analysts thought Bally and WMS would consolidate in some manner in order to compete better with IGT.

Not anymore.

“We see WMS as very well positioned to gain further market share near-term and in the long run, and is extremely well situated to benefit from a recovery in replacement demand,” wrote Joel Simkins of Macquarie Securities.

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Louisiana gaming regulators last week gave Pinnacle Entertainment an extra 150-day stay on starting construction on its casino projects in Lake Charles and Baton Rouge. The Las Vegas-based casino operator was granted a 90-day delay in February in hopes that credit markets might soften, allowing Pinnacle to proceed with the projects.

The extra time allows Pinnacle to win local zoning approval and sign a construction contract for the Baton Rouge development.

Howard Stutz’s Inside Gaming column appears Sundays. E-mail him at hstutz@reviewjournal.com or call 702-477-3871. He blogs at lvrj.com/blogs/stutz.