Anchor Reports Blowout Quarter

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Slot machine maker

Anchor Gaming

(SLOT)

blew away analysts' earnings estimates for the second straight quarter, reporting record profits for the three months ended Sept. 30.

Anchor said it earned $16.7 million, or $1.23 per share, for the quarter, up from $8.2 million, or 60 cents per share, in the same period in 1996. Revenue rose from $35 million to $54 million, and the company's

after-tax

profit margin hit 31%, a level comparable to

Microsoft

(MSFT) - Get Report

and three times higher than the average

S&P 500

company.

The official consensus estimate for Anchor's earnings was 99 cents, according to

First Call

. But after the company called analysts' estimates conservative, the "whisper" number rose as high as $1.20, according to West Whittaker of

Neumeier Investment Counsel

, which owned 592,000 shares of Anchor as of June 30.

Explosive growth in the company's new "game-within-a-game" slot machines, the subject of a

series in

TheStreet.com

last month, drove the profit gains. Revenue from the company's proprietary games division nearly tripled year-over-year, rising from $9.2 million in 1996 to $25 million in 1997, while expenses held roughly stable at about $3 million.

Anchor President Mike Rumbolz says the company's base of "Wheel of Fortune" slots each month, which was 2,000 at the end of June and 2,700 at the end of August, continues to grow by several hundred machines each month. (

As originally published, this story incorrectly said the company had 2,700 of the slots at the end of March.

) Wheel of Fortune, a joint venture between

International Game Technology

(IGT) - Get Report

, the world's largest slot maker, and Anchor, has proven extremely popular -- and profitable -- for Anchor.

While the quarter was a hit on almost every level, investors ultimately reacted with only modest enthusiasm. Early excitement drove the stock to 99 1/2, but shares slipped back as low as 93 1/2 before recovering toward 94 1/2. With Anchor stock up almost fourfold since March (see chart from data tracker

Baseline

below), even the company's biggest bulls say the stock may be due for a breather.

"The company's obviously on a roll," Whittaker says. Whittaker expects the growth to continue as Anchor opens seven small casinos in Ontario, Canada, in 1998 and introduces Cashball, another new slot machine.

Still, Whittaker says Neumeier has lately lightened its Anchor stake. "We took some profits -- we sold a fair chunk after it had tripled."

Investors are concerned that company Chairman

Stan Fulton

is selling as much as 2.1 million Anchor shares in an offering that's expected to be priced today. And competition looms for Anchor's hugely profitable slots, with several companies expected to introduce new slots at the

World Gaming Congress

, which begins tomorrow.