IGT beats analysts’ expectations

Thursday, July 21, 2005 | 10:57 a.m.

International Game Technology continued to weather a drought in domestic casino openings today, reporting third-quarter earnings that fell 16 percent from a year ago, yet still beat analysts' expectations.

The Reno-based slot machine manufacturer -- the largest in the world -- reported net income of $114.7 million, 32 cents a share, on revenue of $579.6 million, compared with net income of $141.1 million, 38 cents a share, on revenue of $618.9 million in the third quarter of 2004.

A survey of 21 analysts by Thomson Financial anticipated earnings of 30 cents a share for the quarter.

Wall Street reacted negatively to the results in early trading today. IGT stock was down 98 cents to $28.02 in early action on the New York Stock Exchange.

The replacement cycle of ticket-in-ticket-out machines from coin-based slots continues to slow, and a lull in casino openings in 2005 with no significant new market entries continues to stymie growth for IGT, which reported in April that fiscal 2005 would be challenging for the company.

"We continue to believe that IGT remains in a period of lower earnings given the tough macro environment," said Marc Falcone of Deutsche Bank Securities Inc., in a note to investors today. "Positive developments in California, Florida or timely rollouts in New York, Pennsylvania or strong Japanese sales could represent upside to current estimates."

In a conference call this morning, IGT Chairman and Chief Executive T.J. Matthews said with the exception of the opening of Wynn Las Vegas in April, 2005 was pegged to be a slow year for new orders. The company anticipates a slight rebound with the opening of Boyd Gamings South Coast project and Station Casinos Red Rock Station in 2006, but growth isnt expected to take off significantly until 2007.

"It's a tough operating market," Matthews said, "but we continue to execute well, both operationally and strategically."

Matthews said the opening of new racino jurisdictions in New York and Pennsylvania and the tribal casino markets of Florida, Oklahoma and Washington and a resurgence in California should help get the company back on track as well as an anticipated technological breakthrough with the development of server-enabled games.

He said server-based games, which would enable casinos to change out games and hold percentages from a centrally based computer, won't result in a "material uptick" in earnings until 2007, with more product development occurring this year and field tests and regulatory scrutiny occurring in 2006.

The company continues to experience some bright spots that have kept investors smiling.

IGT's international operations are on track to establish a record in revenue and operating income for the year. Domestically, the company said it has received favorable market response from the introduction of its Party Time, Star Wars, Fort Knox and video Megabucks slot products.

International product sales rose 27 percent over the same quarter a year ago to $91.9 million with replacement sales and new units in Latin America and Australia.

The third quarter ended with the company having 38,500 recurring revenue machines -- slots that IGT gets to share the profits. That's an increase of 2,100 units over the same period a year ago, but just 600 more than the second quarter. Analysts had anticipated a quarter-over-quarter increase of about 1,000 units.

Matthews also said the company should benefit from a new alliance with Las Vegas-based Shuffle Master Inc. and Progressive Gaming International on table game systems.