Slot maker International Game Technology posts strong quarterly earnings again

David Strow

Thursday, April 19, 2001 | 11:18 a.m.

International Game Technology's strong earnings performance continued in the quarter ending March 31, as the Reno slot maker easily topped earnings expectations for the quarter.

IGT today reported net income of $53.6 million, or 70 cents per diluted share, for the second quarter of its fiscal year. That represents an increase of 116 percent on a net income basis, and 112 percent on a per share basis.

Analysts had expected IGT to earn 65 cents per share.

Despite the powerful performance, it appears investors had been expecting more from IGT, which has been on a powerful tear for the last year. By midday, IGT traded at $55.25, down $2.70.

Yet some remained quite bullish on IGT. In a research note issued this morning, Bear Stearns gaming analyst Jason Ader hiked his fiscal year earnings estimate for IGT from $2.60 to $2.73 per share.

"Despite continued strength in the share price, we believe investors can still recognize a minimum increase of 20 percent from current levels over the next six to 12 months," or $70 to $72 per share, Ader wrote.

Revenues for the quarter rose 59 percent to $346.9 million.

IGT attributed the strong gains to a number of factors, including a surge in demand from California tribal casinos and fresh demand from existing casinos for IGT's new video-based slot products.

Product sales rose 86 percent to $221.2 million during the quarter. The 30,400 slots sold during the quarter represented a 34 percent increase over last year.

The biggest reason was the California market. During the quarter, California accounted for one-third of IGT's slot machine sales in the United States; in the year-ago period, IGT sold no slots in California.

In addition, IGT said it is seeing strong demand from non-California casinos, "driven by the combination of an aging installed base of gaming machines, desirable new video reel games and the appeal of the new ticket-in/ticket-out (cashless) technology."

Gaming operations -- that is, revenues derived from slot machines that are leased to casinos, rather than sold -- rose 27 percent to $125.8 million. IGT said this was the result of heavy demand for several of its new participation slot machines, including its video-based Jeopardy! slot and its Addams Family-themed machines. California was again a factor as well, as IGT increased its installed base of "MegaJackpots" slot machines from 600 to 1,200 in California during the quarter.

Growth should continue to be strong in gaming operations, IGT said, driven by expected heavy demand for IGT's Austin Powers slot machine.

IGT also improved its operating margin to 29 percent during the quarter, up from 25 percent in the second quarter of 2000. IGT said this was the result of "markedly higher (sales) volumes and improved operating efficiencies." These gains were partially offset by higher sales, general and administrative expenses and a $3.1 million gain in bad debt recorded during the quarter.