Pull up a chair and make yourselves comfortable, Shuffle Master
Shuffle Master, a May 2004 Motley Fool Stock Advisor selection, is scheduled to report earnings after the close of trading Thursday, and analysts are expecting blockbuster results. Consensus estimates currently call for Shuffle Master to report $0.24 per diluted share in profits, on $30.5 million in sales for the final quarter of its fiscal year. If that proves true, it would equate to a 33% jump in profits versus a revenue increase of just 18%.
Not bad at all -- and remember, that's without the benefit of "inorganic" earnings growth from the firm's recently announced deal to acquire Australian gaming concern Stargames. The Stargames deal, assuming it passes all regulatory hurdles, has been approved by the firms' respective shareholders. It's expected to close in fiscal Q1 2006 -- sometime between now and the end of January 2006.
Keeping our eye on this fiscal year, the company has reported earning $0.57 per share over its first three quarters of last year. If Shuffle Master reports earning $0.24 per share tomorrow, it will be right on target to meet analysts' expectations for both the quarter and the fiscal year.
Moreover, three months ago, Shuffle Master projected that its profits for the year would reach $0.81, and might go as high as $0.82. Focus on that second number, because this company has a history of beating analyst estimates by a penny or two. It has done so in each of the past four quarterly earnings periods, and Thursday's news could well be more of the same.
But aside from an earnings "beat," what else should Fools be looking for tomorrow? Primarily, we want to see signs that the company is bolstering its balance sheet to support the additional debt it will be taking on to finance the Stargames acquisition. At last report, Shuffle Master had about half the cash (and equivalents) necessary to do the deal. So, within the next few months, it must add more than $50 million to its already sizable debt load of $165 million.
Ideally, we'd like to see that some of that debt has already been paid off over the past three months, or that additional cash has been laid aside in anticipation of the purchase. We'll also want to monitor the company's cash flow; last quarter, it declined a bit versus fiscal Q3 2004. Hopefully, we'll see that last quarter's shortfall reappear in its coffers in Q4.
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Fool contributor Rich Smithhas no position in either company named above.