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Gaming Guru

Howard Stutz

Shuffle Master profits slip

22 December 2006

LAS VEGAS, Nevada -- Integrating the assets of an Australian slot machine company that it purchased in February buoyed the profits of casino equipment maker Shuffle Master.

The Las Vegas-based company, which ended its fiscal year on Oct. 31, said Thursday its fourth-quarter profit was $4.9 million or 14 cents per share, down from $8.2 million or 23 cents per share a year ago.

Analysts polled by Thomson First Call expected Shuffle Master to earn 19 cents a share in the quarter.

Meanwhile, the company's revenues climbed 39.3 percent to $46.1 million from $33.1 million.

"Fiscal 2006 was a year characterized by many successes and also many challenges for Shuffle Master," company Chairman Mark Yoseloff said in a statement.

In February, Shuffle Master spent $108 million to acquire Stargames, an Australian slot machine maker and casino equipment supplier. The acquisition opened more European and Asian expansion opportunities for the company. During the year, acquired Stargames products contributed $33.2 million to the company's total revenue.

But costs and write-offs to bring the company aboard hindered Shuffle Master.

"During the year we achieved record revenue in all categories," Yoseloff said. "Despite this, net income and earnings per share lagged our traditional growth rates as a result of lower gross margins and increased expenses."

During 2006, Shuffle Master grew the number of automated card shufflers it has on the market by 20 percent. The company's total number of table games in casinos, such as Three Card Poker and Let It Ride, increased 15 percent.

Shares of Shuffle Master closed at $26.25 in trading on the Nasdaq National Market, down 11 cents or 0.42 percent. The company announced earnings after the stock markets closed Thursday.

Gaming analysts said investors are growing concerned about the drag Stargames has had on the company's earnings. Shares of Shuffle Master are off almost 20 percent since Dec. 5.

Steven Wieczynski of Stifel, Nicolaus Capital Markets said Shuffle Master's management needs to better communicate its vision with investors.

"Before investors lose total confidence in Shuffle Master's management, we would like the company to clean the slate once and for all and get investor's expectations back in line," Wieczynski said in an investors note. "This is a management, in our opinion, that is starting to walk the thin line of continually over-promising and underdelivering. We believe investors are becoming impatient and may start exiting the name."

Wieczynski said he still believes Shuffle Master has a strong future.

"We believe the recent sell-off has presented an attractive entry point into the shares," Wieczynski said. "We continue to think Shuffle Master presents the best growth story in the gaming industry."