WMS: UPCOMING FQ2 RELEASE

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.


7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more