Wednesday, March 2, 2005 | 9:27 a.m.
RENO -- The drop in International Game Technology's stock price is temporary, due largely to regulatory delays in new U.S. markets such as Pennsylvania and Oklahoma, IGT's new chairman said Tuesday.
"Make no mistake, gaming expansion is alive and well," IGT Chairman TJ Matthews told about 250 shareholders at the annual meeting of the world's largest maker of slot machines.
"It is going to be as big as people anticipate, but it's going to take awhile," he said.
Matthews, already IGT's chief executive, succeeds retiring Chairman G. Thomas Baker, who announced in November that he would step down at Tuesday's meeting.
A management shuffle last month followed two sluggish fiscal quarters for IGT after 18 consecutive quarters of improved earnings.
Steve Morro, then vice president of eastern regional sales, was promoted to president of North American gambling sales, replacing Ward Chilton. Ron Rivera, vice president of sales, was promoted to senior vice president of sales.
"The management of this company is very sound," Baker said in his final address to shareholders.
"You're going to be very, very pleased with the performance of TJ as chairman ... He's made some changes (recently), but every change that has been made has been internal. That's a philosophy we share."
Matthews introduced Morro at the meeting as a 16-year veteran of the company "who has made the biggest impact in terms of our machines on casino floors."
Frank Harmond, a 20-year stockholder from Reno, asked for an explanation for the price of the stock, which has ranged the past 52 weeks from $28.22 to $47.12. It closed Tuesday on the New York Stock Exchange at $30.19, down 27 cents, after selling for more than $35 as recently as November.
"Oftentimes during short periods of time there are differences between what constitutes a great company and a great investment," Matthews said.
"Beginning last year people were talking about gaming expansion everywhere ... I think that contributed to expectations that gaming would expand at an incredible pace," he said.
"Half of that was correct. ... Implementation at times takes longer than anticipated."
Pennsylvania has yet to install any of the 61,000 machines that were expected to be in place by now, Matthews said.
"As yet, they don't have a regulatory framework," he said.
The same is true in Oklahoma, where voters in November agreed to essentially increase the slot market there by 50 percent but necessary agreements with tribes have not been reached, he said.
Anticipated growth in replacing the first generations of cashless slots in established markets also has fallen short of expectations, but that, too, should change, he said.
An industry analyst said Matthews' comments were "very accurate."
"Overall, the fundamentals of the company remain strong," said Andrew Zarnett, casino industry bond analyst for Deutsche Banc in New York.
"The delay in implementation of regulations in various states has slowed the number of new machines sold to the marketplace," he said, but "it's a delay, rather than a cancelation."
Don Hart, a stockholder from Sparks, raised concerns whether company executives selling their stock could have contributed to the drop in price.
"I don't know that there has been much of that," Matthews said. "I owned all of my shares all year and have for some time."
Matthews reminded shareholders IGT stock split 4-for-1 in July 2003.
Harmond, who questioned the stock drop, said he's a long-term investor.
"The IGT management has done a superb job. The numbers prove that," he said.
Matthews was re-elected Tuesday along with the current board members for another one-year term by a majority of shareholders. Totals were not released.
IGT reported record revenues of $2.5 billion in 2004, a 17 percent increase from the year before. The $814.3 million in operating income was a 22 percent increase from 2003.
"We have the strongest balance sheet in the gaming industry," Maureen Mullarkey, IGT's chief financial officer, said Tuesday.
For the first quarter ending Dec. 31, profits fell to $122.4 million, or 33 cents per share, down from $176.3 million, or 48 cents a share, a year earlier. In 2004, fourth-quarter profits declined 50 percent because of early redemption of senior notes, while its annual income hit a new record.
First quarter profits declined partly because an extra week was included in last year's quarter due to the way the calendar fell, Mullarkey said Tuesday.
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