Company's expected significant drop in 2010 operating profit prompts share sell-off and a downgraded credit rating

Aristocrat Leisure has warned of a significant drop in operating profit for 2010, prompting a sell-off in the slot giant’s shares and a downgrading of its credit rating.

Sydney-based Aristocrat blamed a stronger Australian dollar and weak earnings in Australia and Japan in announcing that it expects after-tax profit of A$50 million to $60 million for the 12 months ending December 31, down from $116.4 million in 2009.

Some 20 million shares were traded on the news, driving the stock (ASX: ALL.AX) below A$3 to lows not seen in more than six years.

Standard & Poor’s Ratings Services lowered the company’s corporate credit and debt ratings to BB+ from BBB-, citing “cyclical and competitive challenges in each of its markets and the limited extent to which [geographic] diversity tempers Aristocrat from earnings volatility.”

The agency also placed the BB+ ratings on CreditWatch pending review.

With only about $49 million in net debt, Aristocrat dismissed the downgrade as immaterial.

A lack of competitive product releases and high levels of competition contributed to poor earnings in Japan, Aristocrat said, while a limited availability of new product to match demand contributed to weak second half earnings in Australia. Aristocrat has lost market share overall in its home continent, with improved traction in Victoria outweighed by losses in New South Wales. The company said it is responding by bringing forward the release of several new products in the first half of 2011.

Also, Aristocrat further contraction in demand in its biggest market, the United States, as a result of weak macroeconomic conditions, constrained capital spending by operators and a significant drop-off in new property openings.