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Views on earnings differ

Sep 7, 2004 5:13 AM

Not only do gaming companies have to beat last year’s numbers when reporting their quarterly earnings but they also have to exceed the estimates of analysts if they expect to receive support from Wall Street investors.

But sometimes it doesn’t quite work that way.

Case in point involves the two companies that reported last week: Mandalay Resort Group (MBG) and Shuffle Master Inc. (SHFL).

Mandalay posted an excellent 38% rise over the second quarter profit of a year earlier but failed to meet analysts’ expectations.

The company said net profit was $58.2 million or $0.85 per share compared to the $0.67 per share earned in the same quarter last year. Analysts had estimated the company would earn $1.03.

Yet in trading on Friday, only about one third of the normal amount of MBG shares changed hands with the final sale being made at $67.80, just five cents below the opening price.

Not so with Shuffle Master Inc.

The company reported that third quarter net profits had increased 27% with acquisitions helping to drive up the company’s growth.

Quarterly income hit $6.2 million or $0.26 per share, beating last year’s $4.9 million in revenue and a profit of $0.19 per share.

These numbers were even better that the analysts had expected. They estimated the company would have earnings of $0.24 per share. Yet, at the close of trading on Friday, the share price had dropped $32.29, down $1.36 per share. And, there were three times the number that normally trade each day.

Shuffle Master chairman and CEO, Dr. Mark Yoseloff, called the quarterly experience "extraordinary."

"Significant year-over-year gains were recorded in every segment of our business. These results reflect strong organic growth combined with the accretive benefits of our CARD and BET acquisitions; and, demonstrate the positive benefits of the strategic initiatives that we put into place late last year."

Revenues for the quarter jumped from last year’s $15 million to $23 million while income from operations increased to $10 million from last year’s $7 million.

"Due to our continued momentum, we are increasing our guidance for 2004 earnings. Based on the current outlook, management is now forecasting fully diluted earnings per share to be in the range of $0.88 to $0.90 for fiscal 2004, up from our previous guidance of $0.86 to $0.89," Yoseloff said.

The company continues to buy back its stock following a new authorization from the board of directors. Since November of 2002, the company has repurchased $125 million of its outstanding shares.

At Mandalay Resort Group, Glenn Shaeffer, president and CFO, blamed high health-care costs and a slow summer season for the company’s failure to meet analysts’ expectations.

"Despite the absence of a strong convention component this quarter," Shaeffer said, "Mandalay still performed impressively, delivering all-time record results for its second quarter by a distance."

Revenues for the quarter that ended on July 31 rose to $713.8 million, up from last year’s $644.8 million. Income from operations hit $155.5 million, an increase of almost $20 million over last year.

But Shaeffer noted that the results were hampered by a 20% increase in health care costs; a below normal hold percentage at Mandalay Bay on the Las Vegas Strip (which Shaeffer explained by noting that sometimes the players win); and a higher effective tax rate from 36.8% to 35.4% a year ago.

The company has agreed to be acquired by MGM MIRAGE Inc. (MGG) for $8.9 billion. The acquisition is being reviewed by the Federal Trade Commission.