IGT reports drop in profits

By Amanda Finnegan

Published Thursday, Jan. 22, 2009 | 9:23 a.m.

Updated Thursday, Jan. 22, 2009 | 5:45 p.m.

International Game Technology reported a 42.3 percent drop in profits for the first quarter due to a decline in product sales, increased costs to fund jackpots and unfavorable economic conditions.

The Reno-based company said its profit for the quarter, which ended Dec. 31, was $65.7 million, or 22 cents per share, compared to $113.7 million, or 36 per share, in the comparable period for 2007.

"Our first quarter results reflect the on-going effects of difficult economic conditions worldwide that have impacted both gaming operators and casino patrons. Although we expect to continue to face a challenging global market environment in the near-term, we remain focused on IGT's long term objectives," chairman and chief executive officer TJ Matthews said in a statement.

Revenue was down $44.2 million, a 6.9 percent drop from the first quarter in 2007. IGT reported operating expenses increased $35 million over the prior year quarter.

IGT posted a 6 percent drop in revenue and a 19 percent drop in gross profits in gaming operations due to unfavorable economic conditions, the company said. Product sales revenue declined 8 percent while gross profit declined 14 percent for the quarter on a 22 percent reduction in worldwide shipments.

For the first quarter, IGT did increase the amount of capital made, generating $149.5 million in cash from its $65.7 million profit compared to $120.2 million on the $113.7 million in the same period the previous year.

IGT announced Tuesday it acquired “substantially all of the assets” of Progressive Gaming International, which was liquidated last week by one its lenders. The global operations of Progressive will be integrated with IGT’s offices in Europe, Asia, Australia, Latin America, Canada and the U.S. A purchase price wasn’t announced.

Shares of IGT closed at $11.58, up 1 cent, Thursday.

Analyst comments

• “IGT will likely have its $900M convert put back in Dec. 2009, making a dividend cut a potential source of liquidity. The company has removed roughly $80M in annualized costs from its operating expenses, with a goal of an additional $100 million in annual cost saving over the next 12 to 18 months aiming to keep operating costs to 25 percent of revenues.” –Robin Farley, UBS Investment Research
• “We expect IGT to continue refocusing its efforts on content and recapturing market share while improving the cost structure of the company…Cost cutting and restructuring efforts should allow IGT to turn revenues into profits at a swifter pace once the gaming environment improves.” –Steven Wiecezunski, Stifel Nicolaus Capital Markets
• “Overall, results were modestly below our expectations, with revenue slightly ahead offset by lower than expected profitability. Aside from restructuring charges and other book value adjustments, which are excluded from comparability, several other factors affected results… We believe the results are generally neutral for the shares.” – Oppenheimer and Co.
• “Game operations revenues came in better than our forecasts because of the extra week in the quarter (revenue would have been in line backing out the extra quarter), while margins were well below our forecasts due largely due to interest rate movements in the quarter.” –Morgan Stanley Research