The move to a lease model may be saving the day at Shuffle Master (Nasdaq: SHFL). After years of turmoil and the stock being crushed from highs near $40 per share in 2006, it appears revenue and earnings have steadied because of a move away from sales and toward leasing.
Revenue was up 14% from last year and lease revenue accounted for 47% of the total. This growth was in contrast to falling revenues at Bally Technologies (NYSE: BYI) and International Game Technology (NYSE: IGT), which were both hurt by longer replacement cycles in the United States. Those who have watched Shuffle Master for a while will also be pleased to see a 25% reduction in net debt, which once nearly strangled the company after a series of ill-timed acquisitions.
The quarter could have been better, but higher stock-based compensation and a high sales expense because of higher-than-expected sales were a drag on the bottom line. Still adjusted EPS of $0.13 was a penny higher than estimates, and revenue of $51.5 million beat estimates by nearly $2 million. This outperformance was partly because of Pennsylvania and Delaware allowing table games during a quarterly one-time event.
Overall performance was positive for Shuffle Master, especially given the weak economic environment. Given an innovative new line of i-Tables and continued traction in leasing, I see Shuffle Master being a consistent performer in the gaming supply business. I don't expect any sort of blowout performance given current gaming trends and a P/E ratio around 19, but after a rocky three years for the stock, shareholders might appreciate consistency and a lower debt load.
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