Back in 1978, "Grease" was a hit movie, and Michael Jackson
had just begun work on his landmark "Off The Wall" album.
Thirty-four years later, both the movie and the performer have
reached iconic status in the entertainment world.
How do we know this? Because they both have slot machines
named after them, just like Elvis and the Flintstones.
The "Grease" and "Michael Jackson King of Pop" machines were
introduced about a year ago byBally Technologies (
), which makes slots, video machines, casino-management and
server-based systems for the global gaming industry.
Around 1,500 Grease and Michael Jackson machines have been
placed in casinos and other venues over the past year.
Each of the machines features video images, graphics and
various other pyrotechnics. Their popularity among slot players
is a big reason Bally has seen its gaming business rebound the
past few quarters.
"Grease and Michael Jackson are probably the two
best-performing games over the last year," said Vishnu Lekraj, an
analyst at Morningstar. "They have outperformed almost every
other game on the casino floor."
Slot machines are part of Bally's Gaming Operations business,
which supplies local-area and wide-area progressive (WAP) games
that let large numbers of slot players compete for huge
Bally's expects further growth from this segment as it
continues an aggressive rollout of new products tied to popular
sports and entertainment brands.
"Bally's pipeline of new WAP titles due for release remains
strong, with upcoming titles including Nascar, Pawn Stars, Beach
Boys, Hot Shots and Cash Wizard Tiki Majic," JPMorgan analyst
Joseph Greff noted in a recent report.
In addition to its Gaming Operations business, Bally also
operates a Gaming Equipment business, which sells advanced video
and mechanical-reel gaming devices.
A third business unit, Gaming Systems, supplies products and
applications designed to help clients analyze and manage their
gaming, accounting, promotional, back-office and customer
Much of Bally's focus in recent years has been on growing its
Gaming Systems unit, Lekraj says. This had a negative effect on
its core gaming business.
"They were concentrating so much on the systems business that
they neglected gaming," he said.
But over the past few quarters, Bally has worked hard to
bolster its lineup of gaming products.
"They've redoubled their efforts in gaming, and it's paying
off," Lekraj said. "They've made improvements to their boxes,
improved their graphics and improved the overall playing
The company's Gaming Operations business delivered $101.2
million in revenue during the fiscal first quarter, which ended
in September. That was up 19% from the prior year and represented
43% of total revenue.
Gaming Product sales grew 28% to $82.7 million, while Gaming
Systems sales rose 12% to $51.3 million. Overall revenue for the
quarter climbed 21% to $235.2 million, topping Wall Street
estimates for $231.8 million.
Earnings rose 71% to 77 cents a share, the highest gain in
years and above views of 70 cents.
The company also increased its fiscal 2013 EPS guidance to a
range of $3.05 to $3.35 from prior guidance of $2.95 to
"Bally's guidance anticipates continued year-over-year growth
in game sales, gaming operations and system revenues," Greff
noted. "It further anticipates an increase in the placement of
its premium games, particularly WAP with its early successes in
Grease and Michael Jackson."
Bally reported its Q1 results on Oct. 25. A day later, its
stock price touched a five-year high of 51.16.
The firm has now run off five straight quarters of
double-digit sales and earnings growth. This compares favorably
to the recent financial performances of rivalsInternational Game
) andWMS Industries (
Financially, Bally continues to rebound from an industry slump
that began in 2008 with the financial crisis and ensuing
The company reported lower sales each year from fiscal 2009 to
fiscal 2011. It also logged lower earnings in fiscal 2010 and
2011. It returned to growth mode in fiscal 2012, which ended in
June, posting a 35% year-over-year gain in earnings and a 16%
rise in sales.
Bally and other gaming stocks still face the same head winds
that have lingered for years.
Many consumers are still wary of spending money on trips to
Las Vegas and other gambling meccas. Even when they do head to a
casino, they don't spend as much as they did during last decade's
"The macro environment remains a concern for the gambling
industry," analyst Lekraj said. "There hasn't been a lot of
growth, and the revenue yield per machine has fallen over the
last couple of quarters."
One way Bally can reduce its exposure to weakness in the U.S.
is to grow its presence in international markets, which still
account for less than 20% of total revenue.
International sales as a percentage of the total have actually
declined over the last couple of quarters.
That's partly because Bally has put much of its focus on the
domestic market, and partly because it has run into regulatory
and trade issues in markets such as Argentina and Europe.
But the company remains optimistic about its opportunity
"The big upside for us is getting our product development and
management process even more in tune with the international
markets," Chief Executive Richard Haddrill said on a Q1
conference call. "Over the next six to nine months, we've got
some great product rollouts specifically for international
markets. We're very bullish on international over the next year