Reno slot maker posts another record profit

Thursday, July 22, 2004 | 10:57 a.m.

International Game Technology today reported another record profit as it rode the expansion of the gaming industry worldwide.

The Reno-based slot machine manufacturer, which has a 75 percent market share and is the world's largest slot producer, reported earnings of $141.1 million, or 38 cents per share, for its fiscal third quarter ended in June, compared with $103.7 million, or 30 cents per share, a year ago.

Wall Street analysts surveyed by Thomson First Call had estimated earnings of 33 cents a share.

Revenue was $618.9 million, up from $561.9 million in the year-earlier period.

"IGT had a very solid quarter," Deutsche Bank gaming analyst Marc Falcone said. "There was strength in gaming operations as well as strong margins in both gaming operations and product sales."

Company officials also said during a conference call announcing earnings this morning that the consolidation of key players in the gaming industry would not hurt the company's profit because IGT is active with so many other customers in other jurisdictions.

Chief Executive TJ Matthews said that while he expects capital to be frozen for merger participants while deals are being completed, "we expect our good relationship (with the companies) will continue in the post-consolidation era."

In the last six weeks, four Las Vegas companies have wrapped up deals, with MGM MIRAGE agreeing to buy Mandalay Resort Group for $8 billion and Harrah's Entertainment Inc. reaching a deal to absorb Caesars Entertainment Inc. for $9.4 billion.

Matthews said the biggest impact could involve Mandalay Resort Group, which has not converted most of its casino floor's slot machines to the popular cashless technology. Mandalay has received permission from gaming regulators and has begun exploring the economics of changing out the mother boards of its own machines to cashless technology to save money. Matthews did not directly address the Mandalay strategy in the conference call.

Harrah's was IGT's largest customer during the most recent quarter, taking delivery of 2,500 machines.

But regardless of what happens with the merger participants, Matthews said the company has numerous other opportunities, citing possible and approved legislative changes in California and Pennsylvania and the potential expansion of gaming in Great Britain as opportunities that would fuel growth.

"We have an awfully big customer universe, so we should be able to continue favorable margins for this company into the future," Matthews said.

Matthews said the company views the expansion of tribal casinos in California as a driver for 2005 earnings and the authorization of new gaming venues in Pennsylvania and Great Britain as a 2006 event.

He also cited potential opportunities in Maine, Oklahoma and Nebraska domestically and Russia, Poland and Italy internationally for growth, noting that the company expects to deliver between 75,000 and 80,000 units domestically in the next year, 40 percent of which would be new machines and 60 percent as replacement units with upgraded technology.

The company said it sold 35,100 machines worldwide during the current quarter compared with 37,500 machines in the same period a year ago, but revenue on those sales increased 5 percent to $315.6 million. IGT attributed the increase to "stronger domestic pricing realization" and an increase in international machine sales, which benefited from a favorable foreign currency exchange.

Revenue from the company's gaming operations division, which includes participation in progressive slot machines, increased 16 percent over the same period a year ago to $303.3 million.

Chief Financial Officer Maureen Mullarkey also said during the conference call that two former employees had claimed that some IGT patents acquired in a takeover were overvalued on IGT's balance sheet. IGT had hired lawyers to check those charges.

"Outside council found the allegations to be totally without merit," she said.