We’re a little above the Street for FQ2 but a little below for FQ3 and FQ4 owing to a dearth of new casinos and expansions in 1H CY2010. New market timing may be the important take away from the call.
WMS will report FQ4 (December) earnings on January 26th. We are projecting $0.44 in EPS, a touch above the Street at $0.43 on a slight revenue beat. We do think there is some risk to the March and June quarters so we remain a few pennies below in each of those quarters. The shortfall from the Street stems from lower new casino and expansion slot sales. We believe our replacement expectations are pretty much in-line.
New Market Discussion
- Italy timing – we wrote about Italy in our 12/10/09 post, “THE ITALIAN BIRD”
- Australia - Will likely finish field trials by year end of first week of January so they will be able to say whether or not they can start shipping. They are shipping to New South Whales (100,000 unit market) but they are only targeting the larger casinos in that market. This is definitely a source of upside for WMS. Total international sales in fiscal 2009 were less than 10k units. We’ve gotten positive feedback on WMS’s opportunity there.
- Mexico – WMS should be able to give an update on this potential new market for WMS. As we wrote about in our 1/6/10 note, “WHAT DO WE DO WITH THESE PESKY SLOT STOCKS”, Mexico was a class II market - 35-50k games. During the summer time, one of the large operators got its license reissued with games closer to Class III. Early results on the "Class III" games are much better than Class II so operators now want to put more Class III product on their floors. In the September quarter, WMS sold its first games to that market, less than 100, all to that first operator.
On the domestic front it’s really all about replacements since there are very few new casinos and expansions the rest of FY2010. We project total industry unit sales to new/expanded casinos to decline 80% and 41% in the March and June quarters, respectively. WMS is probably getting around 30% share of the replacement market. Management has only provided a breakout of the last 2 Q’s which came in at 25% & 35% replacement ship-share, respectively. For WMS, replacements usually pick up “dramatically” from the December Q to the March Q and they typically get another smaller lift into the June Q. They will need a nice acceleration to offset the new and expansion degradation.
Internationally, between Mexico & Australia, all else being equal, there can be 20-25% upside from what was shipped in FY2009. Assuming that organic shipments are down y-o-y, it’s likely that WMS will still grow international shipments by around 5% if not more. Depending on how quickly Mexico and Australia ramp, there could be upside to our projections.
