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North America Sales Are Bally Tech's Lemons

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The slot machines are still jingling, but there are fewer coming off the production line these days at Bally Technologies (NYSE: BYI  ) . An explosion of new casinos last year has been exhausted, leaving little new business for this year. Combine that with a slow replacement cycle for jittery U.S. casinos and you have weak gaming equipment sales.

International sales helped keep equipment from falling too far. Total units were down to 3,830 this quarter, from 5,043 last year, but international sales were 1,225 units, up from 1,042 last year. Clearly, overseas is the place to be right now. Despite the drop in unit sales, revenue was helped by an average sales price that increased 8% to $15,328, an incremental positive.

Results were better in gaming operations and systems. Gaming operations increased sales to $77 million from $71 million a year ago while maintaining an impressive 70% margin. Systems revenue increased $7 million to $54 million this quarter while improving gross margin to 74% in Q4.

Bally's unit trends were similar to trends at International Game Technology (NYSE: IGT  ) , but the other big competitor in the industry is taking share. WMS Industries (NYSE: WMS  ) increased unit sales 2% this quarter in spite of weak North American conditions.

Bally talks a lot about the R&D investment it's making and the innovative products it's producing. As casinos start replacing old slots, it's time to drive the money it's spending on R&D to new sales -- something Bally didn't do this quarter. I don't see a reason to get excited about this quarter. Gaming equipment has a large potential upside, but WMS Industries may take more advantage of that than Bally Technologies.

More on gaming:

Fool contributor Travis Hoium does not have a position in any company mentioned in this article. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.

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Related Tickers

12/31/1969 7:00 PM
BYI.DL $0.00 Down +0.00 +0.00%
Bally Technologies CAPS Rating: *****
IGT $28.53 Up +0.15 +0.53%
International Game… CAPS Rating: ***
WMS.DL $25.29 Up +0.25 +0.00%
WMS Industries CAPS Rating: ***