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On initial glance, a new deck appears to be in play at

Shuffle Master

(SHFL)

. The casino equipment supplier's shares climbed Tuesday after the company reported second-quarter earnings results that beat Wall Street estimates.

Despite the earnings beat, the highly leveraged casino equipment maker -- whose products include automatic card shufflers and casino chip counters -- still faces some headwinds this year.

Shuffle Master's stock has been a complete disaster over the past year, falling some 65% from its 52-week high. Shares were rising 5% to $6.57 in recent trading Tuesday morning.

The looming refinancing of the company's $150 million of convertible bonds at a "potential higher cost of capital will likely weigh on shares through the majority of (2008)," Roth Capital analyst Todd Ellers wrote in a research note Tuesday.

Ellers, who rates the stock neutral, estimates Shuffle Master will raise equity and debt refinancing that will result in 15 cents of earnings dilution in 2009.

Nonetheless, Shuffle Master's latest quarter revealed some positives. The company appears to have gained some success in its strategy of leasing out more of its machines rather than selling them.

Shuffle Master reported net income of $3 million, or 9 cents a share, down from profit of $3.3 million, or 10 cents a share, a year earlier, but better than the 7 cents a share that analysts were expecting, according to Thomson Financial data.

The convertible maturity is resulting in constraints on working capital. Since the holders of the notes have the right to demand the company to buy back the notes at par value in April 2009, Shuffle Master moved the notes to the current liabilities section of its balance sheet in its latest quarter.

This resulted in $85.9 million of negative working capital, meaning Shuffle Master's current assets aren't close to covering its current liabilities. Hence, there is a need to raise further capital to refinance the notes.

Over the past six months, Shuffle Master generated $18 million of free cash flow, which allowed the company to pay down some of its nonconvertible debt.

The giant elephant in the room for all casino equipment suppliers -- including

International Game Technology

(IGT) - Get Report

,

WMS Industries

(WMS) - Get Report

and

Bally Technologies

(BYI)

-- is how the slowdown in gambling revenue at casino operators will affect machine spending.

With the exception of Shuffle Master, the shares of equipment suppliers this year have been more bulletproof than casino owners such as

MGM Mirage

(MGM) - Get Report

and

Las Vegas Sands

(LVS) - Get Report

, which have tumbled along with Shuffle Master.

In fact, Las Vegas Sands shares were falling 4% Tuesday to $57.57 after BMO Capital Markets analyst Jeffrey Logsdon cut his earnings estimates and price target on the stock. Logsdon said the weakening U.S. economy will hurt operations in Las Vegas and growing competition in the VIP market will put pressure on Macau results. He cut this year's EPS estimate for Sands from $1.24 to 57 cents and cut the price target from $75 to $57.

Most Wall Street analysts remain bullish on the equipment sector, but several veteran buyside casino investors have been saying lately that dangers lurk ahead for the group, given the eventual derivative fallout of weak spending by casino owners.

However, the overhang of the convertible note means Shuffle Master's fate is also in the hands of the capital markets over the next year, which is not a great place to be these days.