Slot maker IGT beats earnings expectations

David Strow

Tuesday, Nov. 7, 2000 | 11 a.m.

International Game Technology of Reno today reported a big jump in earnings for the quarter ending Sept. 30.

IGT, the world's largest slot machine maker, reported net income of $52 million, or 70 cents per diluted share, for the quarter. In the year-ago quarter, the company lost $40.5 million, or 45 cents per share.

When one-time charges and income were removed, IGT recorded net income of $49.2 million, or 66 cents per share, a 64 percent increase in net income and 100 percent increase in earnings per share. IGT's earnings were hit by a $98.1 million restructuring charge one year ago.

The results handily beat the consensus analyst estimate of 60 cents per share.

Total revenues reached $316.2 million, a 39 percent improvement over the year-ago quarter. For the year, IGT reached a milestone, surpassing $1 billion in annual revenues for the first time.

A strong earnings report has been expected from IGT since mid-October, when the company said it was experiencing strong sales growth during the quarter. As a result, IGT's stock rose just 56 cents this morning to $37.81.

IGT received a significant boost from product sales revenue, which rose 57 percent to $208.2 million. Though sales were strong across the country, IGT said it benefited from sales to several new casinos -- Suncoast, which opened near Summerlin in September, Hollywood Casino, which recently opened in Louisiana, and various tribal casinos throughout California. California tribal casinos purchased 9 percent of the slots sold by IGT in the quarter.

IGT also reported that sales were up 84 percent at its Australian subsidiary, allowing it to post a profitable quarter.

But of more interest to some analysts was IGT's gaming operations segment, which consists of slots that are leased to casinos, rather than sold. This segment produces far higher profit margins and is considered a recurring revenue stream.

Revenues from gaming operations rose 13 percent during the quarter, to $107.9 million, even while costs and expenses for the unit fell 27 percent to $28.4 million. That resulted in a gross profit margin of 74 percent for the gaming operations unit, up from 59 percent.

By comparison, the gross profit margin on product sales was 37 percent, unchanged from last year.

"Their new participation games are very successful, and a lot of coins are going through these games," said Todd Jordan, gaming analyst with Wasserstein Perella Securities. "The other issue is really the strength of the gaming industry.

"It's the first time we've seen gross profit from gaming operations exceed that of product sales. That's a much better gross profit source, because it is recurring."

IGT may have also benefited from higher interest rates, Jordan said. IGT has to purchase annuities to pay large jackpot winners, and annuities become cheaper when interest rates are high, Jordan said.

Based on IGT's earnings report, Jordan raised his 2001 net income estimate from $2.21 per share to $2.33 per share.

IGT said the performance of gaming operations was boosted by strong demand for several of its new game products, including slots based on "I Dream of Jeannie," "The Addams Family," "Wheel of Fortune" and "Jeopardy!" The company now has more than 19,000 games installed on a revenue-participation basis, up more than 25 percent from one year ago.