STUART ENTERTAINMENT SALES RISE 28 PERCENT TO SET NEW HIGHS, BUT EARNINGS DECLINE AS A RESULT OF EXPENSES RELATED TO 'GROWTH PROGRAMS'
LITTLETON, Colo., Nov. 19 ~PRNewswire~ -- Stuart Entertainment Inc. (NASDAQ: STUA) today reported that, despite record-breaking sales for the third consecutive quarter, earnings in the third quarter declined as a result of significant expenses and unforeseen delays primarily related to the expansion and improvement of manufacturing and administrative facilities in the United States and Mexico as well as various research and development projects designed to broaden the company's new Video Lottery Terminal (VLT) product line. Leonard A. Stuart, chairman and chief executive officer, stated that, "The solid sales gains achieved in every major product line and the strong pace of incoming orders demonstrate the true strength and growth potential of our business." He indicated that sales have increased at least 28 percent in each of the last three quarters compared to the like quarters in 1991. Stuart added that "the unusual expenses and delays cost us in excess of $500,000 pretax, or 10 cents a share after taxes, in the third quarter, but the expenses represent an investment that will translate to greater sales, reduced costs, improved margins and--most importantly--increased earnings in future years." Operating Results In the third quarter ended Sept. 30, 1992, Stuart Entertainment earned net income of $269,000, or 8 cents per share, on record sales of $13,478,000. This compares with net income of $476,000, or 14 cents per share, on sales of $10,552,000 during the like period of the prior year. In the nine months ended Sept. 30, 1992, the company earned net income of $1,454,000, or 42 cents per share, on record sales of $39,161,000. This compares with net income of $1,422,000, or 42 cents per share, on sales of $30,532,000 during the like period of the prior year. Stuart stated that the decline in third quarter earnings was due to a large extent to expenditures related to the on-going expansion of the Reynosa, Mexico facility and to research and development expenses associated with the company's new VLT operations. Stuart also stated that during the third quarter the company incurred significant non- recurring expenses related to the expansion and refurbishing of several United States manufacturing and administrative facilities in order to accommodate its current growth and improve productivity as well as incurring an unusually high level of R & D expenditures related to the company's break-open ticket, electronic Bingo equipment and Bingo paper product lines. Stuart noted that such R & D expenditures are expected to return to normal levels in future quarters. While Stuart acknowledged that it is highly unlikely that the company will achieve the level of earnings previously hoped for in 1992, he emphasized that "the company will not avoid incurring expenses if they can significantly benefit future results, regardless of the short-term effect of such expenses on earnings. The continuing growth of the company is paramount--both to us and our stockholders." Program Initiated to Improve Margins, Reduce Costs Stuart also announced that a new program has recently been initiated by the company to significantly improve manufacturing efficiency, reduce production costs, and cut Selling, General and Administrative (SG&A) expenses. Stuart indicated that the program will be implemented in stages over the next several months. Among other things, the program includes the consolidation of several United States facilities into the company's Council Bluffs, Iowa plant, and the addition of certain equipment which will generate manufacturing efficiencies and cost savings. Costly Delays at Mexican Facility Stuart reported that, due to unexpected delays in the delivery of equipment to Mexico, the expansion efforts in Mexico were not completed during the third quarter as anticipated. He expressed confidence that this plant will be operating at near capacity by year end. As a result of these delays, the Mexican facility did not contribute to the bottom line in the third quarter. Stuart added that "while these delays were costly, we are confident that the Mexican facility will be making a positive and growing contribution to the company's bottom line starting in the first quarter of 1993; this will give the company sufficient capacity to meet growing sales demand." Stuart said that as a result of these delays--in the face of the continued strong sales demand--the company was required to purchase Bingo paper from outside sources during the third quarter. Gross margins were impacted negatively as a result. The Mexican facility is operated under the joint ownership of Stuart Entertainment and Bingo Press & Specialty Ltd., a Canadian corporation of which Stuart is the majority owner. VLT Operations: Costs and Opportunities Stressing that Video Lottery Terminals and electronic Bingo represents "a major opportunity for the future growth and profitability of Stuart Entertainment," Stuart said that "we are investing significant sums to develop an outstanding line of state-of-the-art VLT equipment as expeditiously as possible and we believe the rewards could be very significant." For the balance of 1992, he said, the company will continue to incur significant R & D and marketing expenses related to various VLT projects. Stuart added, "To date, our efforts have been quite successful--the company's wholly-owned subsidiary, Video King Gaming Systems Inc., has received a substantial initial contract from the Manitoba Lottery Foundation for the delivery of centralized Electronic Bingo Systems and related equipment. Delivery of this equipment is set for late in the first quarter of 1993." Stuart noted that the company's VLT equipment has created significant interest at two major trade shows where it was recently introduced and added "our VLT prospects look excellent." Stuart Entertainment manufactures and distributes a broad line of fund-raising products associated primarily with the Bingo, electronic gaming and lottery industries. STUART ENTERTAINMENT INC. Condensed Consolidated Summary of Income Three Months Ended Sept. 30, 1992 1991 Net sales $13,478,000 $10,552,000 Net income $269,000 $476,000 Earnings per share $.08 $.14 Average shares outstanding 3,512,000 3,451,000 Nine Months Ended Sept. 30, 1992 1991 Net sales $39,161,000 $30,532,000 Net income $1,454,000 $1,422,000 Earnings per share $.42 $.42 Average shares outstanding 3,502,000 3,404,000 Condensed Consolidated Balance Sheets Sept. 30, Dec. 31, 1992 1991 Assets Current assets $17,265,000 $14,221,000 Property, plant & equipment-net 10,790,000 10,190,000 Other assets 4,042,000 3,590,000 Total $32,097,000 $28,001,000 Liabilities and Stockholders' Equity Current Liabilities $13,312,000 $10,274,000 Long-term debt (less current portion) 3,911,000 4,433,000 Other liabilities 1,055,000 1,088,000 Stockholders' equity 13,819,000 12,206,000 Total $32,097,000 $28,001,000 Unaudited and subject to year-end adjustments -0- 11~19~92 ~NOTE: Stuart Entertainment's major manufacturing facilities are located in: Littleton, Colo; Carson, Calif.; and Council Bluffs, Iowa. ~CONTACT: Richard H. Ellison of Stuart Entertainment, 303-795-2625~ (STUA)
CO: Stuart Entertainment Inc. ST: Colorado IN: ENT SU: ERN
BB-MC -- DV006 -- 2913 11~19~92 12:42 EST
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|Date:||Nov 19, 1992|
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