Aug. 28 (Bloomberg) -- Aristocrat Leisure Ltd., the world's second-largest maker of slot machines, said first-half profit slumped 44 percent as U.S. casinos cut purchases and a rising Australian dollar reduced the value of overseas sales.

Net income fell to A$70.4 million ($60 million), or 15.2 cents a share, in the six months ended June from A$125.9 million, or 26.8 cents, a year earlier, Sydney-based Aristocrat said in a statement today.

An attempt to spur profit by investing more on developing new games is failing to counteract a stalling U.S. economy that is discouraging casinos from buying new equipment. In Australia, Aristocrat is facing customers who are spending more adjusting to smoking bans instead of buying slots.

``The first half of 2008 has been particularly challenging with replacement demand in our key markets running at historic lows,'' Chief Executive Officer Paul Oneile, who will leave at the end of the year, said in today's statement. ``Market conditions in general are not expected to improve over the balance of the year.''

Aristocrat didn't change its July 29 forecast for annual profit of between A$190 million and A$200 million.

Currency Loss

Gains in the Australian dollar cut earnings by about A$10 million during the half, the company said. The currency rose 8.2 percent against the U.S. dollar this year, the fourth-best performer among the 16 most-traded currencies. The dollar reached a 25-year high of 98.27 on July 15.

Today's result compares with the company's July 29 earnings forecast of A$70 million. Aristocrat's shares rose 13 cents, or 2.3 percent, to A$5.72 at the 4:10 p.m. market close in Sydney, paring this year's decline to 49 percent.

Earnings before interest and tax from North America, which accounts for almost half of Aristocrat's sales, fell 30 percent to A$78.7 million.

Casino revenue in Las Vegas, the largest U.S. gambling center, fell 5.2 percent to $3.2 billion this year through June, according to Nevada's Gaming Control Board. The slump comes as U.S. consumers struggle with higher gasoline and food prices, declining home values and job losses.

Australian earnings fell 37 percent to A$25.2 million as smoking bans, record fuel prices and the highest interest rates since 1996 curbed consumer spending and prompted fewer orders from pubs and clubs.

Regulation Five

Japanese earnings rose eightfold to A$26.6 million from a year ago when demand was curbed by the introduction of new rules governing the industry in 2006.

Known as Regulation Five, the changes limit the payouts on slot machines.

``Unit volumes were the key driver with a total of 32,280 units sold, up from 11,063 in the prior corresponding half,'' Aristocrat said in reference to Japan.

Oneile, hired in December 2003, said last month he wouldn't renew his contract when it expires at the end of the year.

Aristocrat is the largest maker of slot machines behind Reno, Nevada-based International Game Technology, which on July 17 forecast earnings that trail its previous estimates and warned that economic conditions are reducing gaming activity into 2009.

Earnings from the rest of the world, which includes Macau, Europe and South Africa, fell 63 percent to A$16.5 million.

The company also today settled a class action lawsuit brought by shareholders who claimed the company breached disclosure rules related to earnings announcements in 2001 and 2002.

Aristocrat said the net cost of the settlement after tax and expenses was A$40 million, which will be recorded against full- year earnings.

To contact the reporter on this story: Robert Fenner in Sydney rfenner@bloomberg.net

Last Updated: August 28, 2008 02:32 EDT