Zacks_Analysts' Blog : Shuffle Master Beats by a Whisker - Analyst Blog

Shuffle Master Inc.’s (SHFL) fiscal 2010 third-quarter GAAP earnings grew 4.1% to $5.8 million from $5.6 million in the year-ago period. Excluding special items, earnings per share came in at 13 cents, which edged past the Zacks Consensus Estimate of 12 cents. The better-than-expected quarterly results were mainly attributable to higher revenues and improved gross margin.



Shuffle Master develops, manufactures and markets automatic card shuffling equipment and gaming products such as table games and slot machine software for the gaming industry. The company, which has manufacturing facilities in Las Vegas and at New South Wales, Australia, also distributes casino chip sorting machines and accessories.



During the quarter, Shuffle Master’s total revenue rose 14.4% to $51.5 million from $45.1 million in the year-ago period. The growth was driven by product leases and royalty revenue, which grew 15.1% to $22.0 million coupled with a 13.9% growth in product sales and service revenue to $29.5 million.



Shuffle Master’s gross profit increased 15.7% year-over-year to $31.7 million, while gross margin grew 70 basis points (bps) to 61.4%, primarily due to increased lease and royalty revenue, which carries a higher margin, compared to sales and service revenue. Total operating expenses increased 24.3% to $23.2 million, mainly due to higher severance costs, compensation and R&D expenses. Accordingly, the company’s operating profit declined 2.9% to $8.4 million from $8.7 million in the year-ago period.



Shuffle Master exited the quarter with cash and cash equivalents of $26.5 million, compared to $17.2 million of cash in the year-ago quarter. Long-term debt (including current portion) at the end of the quarter was $90.4 million, reflecting a long-term debt-to-capitalization of 34.9%. During the first nine months of fiscal 2010, the company generated $38.6 million of cash from operations and deployed $14.9 million towards debt repayment and $4.3 million towards capital expenditure.



Shuffle Master has a short-term Zacks #3 Rank (Hold) and a long-term Neutral recommendation.