Thursday, April 21, 2005 | 11:04 a.m.
Quarterly profit for slot machine giant International Game Technology fell 20 percent because of weak demand for replacement units, the company said today.
The Reno-based market leader of the industry said earnings for the company's fiscal second quarter, ended March 31, were $93.9 million, or 26 cents a share, compared with $116.9 million, or 32 cents a share, for the same period a year earlier.
Revenue fell 13 percent to $551 million from $636.1 million a year earlier.
A survey of 21 analysts by Thomson Financial had projected earnings of 31 cents a share.
In early trading, IGT stock was up 26 cents a share from Wednesday's closing price to $25.31.
"While overall product sales were below expectations, we believe this may signal a bottoming quarter, although we expect the demand environment to remain challenging," said Deutsche Bank gaming analyst Marc Falcone in a note to investors this morning.
The company announced this morning that results "were adversely affected by charges related to technical obsolescence of certain gaming operations assets due to shifting market demand toward IGT's newer products that incorporate more innovative features."
But the bottom line was that demand for machines was off substantially, domestically and internationally, with only 22,600 units shipped in the quarter compared with 45,400 in the same quarter the previous year.
"Gaming expansion, although alive and well, is going to take a little longer than anticipated," said T.J. Matthews, chief executive of IGT, in a conference call this morning.
Chief Financial Officer Maureen Mullarkey projected that domestic sales would continue to be flat through the rest of the fiscal year.
Matthews said the biggest frustration was the "lack of new shipments to California" where the boom of the state's tribal gaming ventures has been slower than anticipated.
Matthews said although the slowdown marked "a low point in our recent earnings history," he said he stands by projections that growth would pick up over the next five years in California, Pennsylvania, Florida, Washington, Oklahoma and Texas, and that he still anticipates shipping more than 1 million machines by the end of the decade.
Despite some bright spots internationally in Macau and Russia, sales were off overseas, thanks primarily to a drop-off in Japan on the heels of a record first quarter.
In 2004's second quarter, international revenue was bolstered by sales of IGT's Nobunaga game in Japan and, last quarter, the company had record sales of its Terminator game. In last year's second quarter, the company shipped 5,900 games to Japan; this quarter, there were none. The company plans to release its second game in its partnership with Sega Sammy Holdings Inc., in the second half of the current fiscal year.
Although most of the results were lackluster, there were some bright spots for IGT.
Average revenue per unit increased 37 percent over the prior-year quarter to $11,100. And the company believes that it is maintaining its market share lead in the industry, holding 70 percent of the casino floor with its games. The company said it has a 90 percent share of the video poker market.
The company also expressed enthusiasm with reaction to some of its new products. Matthews said Fort Knox, the company's new entrant in the penny progressive space, and Video Megabucks and the Star Wars video slot have been warmly received by customers and players. The company placed 700 Fort Knox units in the quarter.
"We believe the new rollout of products (like Star Wars and Fort Knox) will be key drivers of the gaming operations segment going forward which should be more visible in future quarters," analyst Falcone added.
The company also reported capital expenditures increased to $105.1 million in the first half of the 2005 fiscal year from $93.3 million for the same period a year ago. For the six months ended March 31, the company has spent $13.6 million on an expansion of the company's Reno facility and in the construction of its Southern Nevada campus in southwest Las Vegas.
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