Scientific Games boosted after reporting better quarter

Mar 4, 2003 5:33 AM

Not only did Scientific Games Corporation (SGMS) improve its operating results during the fourth quarter that ended on Dec. 31, 2002, but earnings improved substantially through the use of a net operating tax loss carryforward.

Revenue and EBITDA (earnings before interest, taxes, depreciation and amortization) for the fourth quarter increased to $118.9 million and $30.7 million, respectively, from $108.4 million and $24.8 million in the comparable period of 2001.

Net income in the fourth quarter before the non-cash preferred stock dividend was $42 million or $0.48 a share. The company said it benefited from the NOL recognition and from the impact of nearly $10 million of charges attributable to the refinancing of the company’s senior secured debt in December.

Excluding the effects from the unusual benefits and the nearly $1 million incurred because of the Pick Six problem in the Breeders’ Cup, the company said net income would have been $9.9 million or $0.11 per diluted share compared to a net loss of $1.6 million or $0.04 a share last year.

Referring to 2002 achievement, Lorne Weil, chairman and CEO, said the company had won major contract extensions and new contracts from "our biggest instant ticket and cooperating services customers including Delaware, Florida, Georgia, Massachusetts, Pennsylvania and the country of France." He said the company helped launch the South Carolina on-line lottery and had been awarded the Colorado contract that will begin in 2004.

"Our pari-mutuel group of companies experienced a successful, albeit challenging 2002. We signed a five-year contract valued at $10 million with Woodbine Entertainment Group and signed extensions with New York Racing Association and three major New York State OTB networks," he said.

Weil said the company was maintaining its previous 2003 guidance of net income per diluted share of $0.53 to $0.63 with revenue of $500 million to $550 million.

The financial report was well-received by gaming analysts with two prominent companies issuing "outperform" and "overweight" recommendations.

Christa Short of Bear Stearns & Co. wrote in a research paper that "We estimate SGMS should grow its earnings by approximately 33% in 2003, and should be able to generate 20%-25% earnings growth over the next several years."

In its research paper, Lehman Brothers wrote, "Though we saw lesser new lottery contracts in 2002 than we expected and a resolution on the Italy contract has been delayed, we still expect earnings per share growth of +26% in 2003." However, the company lowered its target price from $10 a share to $8 a share.

Hard Rock Hotel

A decrease in table games hold percentage from 13.9% to 9.7% was cited as a major reason for a net loss in the fourth quarter for Hard Rock Hotel Inc. This happened despite an increase in net revenues from $27.8 million last year to $29 million in the quarter that ended on Dec. 31, 2002.

The company reported a 22% increase in table game volume and a 14% increase in slot volumes.

Peter Morton, Hard Rock’s chairman and CEO, said he was "pleased with our increased fourth quarter business volume in all operating areas”¦We are optimistic that our table games hold percentage will recover and believe that the increased casino, marketing and entertainment expenditures have spread awareness of the property and will continue to drive revenues in the future."

Hilton Group

Hilton Group PLC, the English firm that owns the "Hilton" brand name for hotels located outside the U.S., as well as Ladbrokes, one of the world’s biggest bookmaking firms, reported a modest decrease in its operating profit for calendar 2002.

The company said that earnings for the year fell to $271.4 million pounds from $280.2 million pounds earned during the previous year.

Company officials blamed "very trying conditions" in Continental Europe for the decline. However, they praised the Ladbrokes team, led by Chris Bell, for having a good year primarily because of the developments of attractive new products. Benefiting, they said, were the Internet and telephone account betting services that grew substantially despite not taking bets from U.S. citizens.

Sands Regent

Solid increases in revenues, resulting from a recent acquisition, were reported for the second fiscal quarter ended on Dec. 31, 2002, by Sands Regent Inc. (SNDS).

The company said revenues were $12.7 million, a 68% increase over last year’s $7.5 million. The increase was credited to the purchase of the Gold Ranch Casino and RV Resort in Verdi at the California state line near Reno, Nev.

For the first six months of fiscal 2003, the company reported revenues of $28.5 million, or $16.5 million more than last year.

During the second quarter, there was a loss per share of $0.04 versus a loss per share last year of $0.06.