Post of the Day
January 26, 1998

From our Anchor Gaming Board (AOL)


Subject: Seasonality Trends
Author: Brigam

I've looked at 3 types of data by quarter for the last few years, and all 3 data types bode very well for Anchor's earnings for the quarter ending March. This suggests that even apart from the new machines that are being rolled out, earnings in the March quarter should be strong.

I believe that Iveystone is predicting EPS for the March quarter of around $1.45. I leave the bottom-up earnings projections in the capable hands of Iveystone, BennettF3 and Slidesguy. But considering that earnings for the December quarter would have been $1.23-1.24 without the special charge to the joint venture, and seeing the seasonality patterns, and knowing about the continuing roll-out of new machines and the continuing strong usage of the machines, and in light of a few other favorable environmental events (see end of post), the $1.45 figure would seem eminently attainable. That would mean an increase of 130% over earnings of 63 cents per share in the March 1997 quarter.

The 3 types of data by quarter that I looked at are (1) the seasonality of Anchor's earnings in recent years; (2) seasonality patterns of IGT's revenues in its Gaming operations; and (3) seasonality of Atlantic City casinos' slot machine winnings. I present these data below.

All data are presented by calendar year and quarters -- not by Anchor's or IGT's fiscal years.

1. Anchor's past earnings per share by quarter (as per Value Line)

Quarter Ending:

  March June September December
1993 --- --- .16 .18
1994 .33 .36 .33 .32
1995 .34 .41 .44 .40
1996 .46 .54 .60 .60
1997 .63 .78 1.23 1.20

Note: In each of the last 4 years, Anchor's earnings were higher in the March quarter than in the preceding December quarter.

2. IGT's Gaming Operations revenues by quarter ($ Millions)

  March June September December
1994 --- --- --- 45.1
1995 48.2 53.5 57.6 57.2
1996 60.4 62.2 72.0 60.0
1997 66.2 76.6 80.0 69.7

Note: In each of the last 3 years, IGT's Gaming operations were higher in the March quarter than in the preceding December quarter.

3. Atlantic City Slot Machine Win by quarter ($ Millions)

  March June September December
1995 --- --- --- 594.4
1996 593.0 81.2 745.5 606.2
1997 631.1 704.1 763.2 627.9

Note: Slot machine win in Atlantic City in the 1st quarter of 1997 was higher than in either the 4th quarter of 1996 or the 4th quarter of 1997. Win in the 1st quarter of 1996 was slightly below the win in the quarter ending December 1995, but the 1996 first quarter was handicapped by a record-breaking blizzard in January 1996.

In addition to these inherently favorable seasonality patterns, in my opinion there are a few environmental factors that should be favorable to Anchor's earnings. These are:

1. New Year's Day fell on a Thursday this year. A significant number of people probably extended this into a 4-day weekend. In a recent press release, Mirage stated that they believed that some of the business that they normally get in the days preceding New Years's Day, was shifted to the days after New Year's Day due to the long weekend that some gambling patrons took.

2. Decent weather in January in the mid-Atlantic states. January is traditionally the second-weakest month of the year (after December) for Atlantic City casinos. With the relatively benign January weather this year, capacity utilization in AC may be above normal.

3. The opening of additional hotel rooms and/or casino capacity in the latter half of 1997 in Las Vegas, Atlantic City and Mississippi should result in more slot-machine play.

4. The fall-off in visits to Las Vegas by high-roller Asian gamblers may make casinos in Las Vegas more ready to install Anchor machines, in order to increase the properties' appeal to American patrons.

In summary, the fundamentals look excellent, and earnings in the 1st quarter of 1998 would seem likely to be higher than earnings in the 4th quarter of 1997, even if not one additional Anchor slot machine were installed in a casino in the 1st quarter of 1998.

Comments invited.

B.


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