IGT opens earnings season

Jul 26, 2005 9:29 AM

Earnings season got underway last week with reports coming from International Game Technology (IGT), Aztar Corporation (AZR) and MTR Gaming Group Inc. (MNTG).

Although the initial reaction of investors caused all three stocks to take early hits, the Wall Street mood appeared to improve toward the end of the trading week with all three companies recapturing at least a part of their early losses.

In the third quarter of the current fiscal year, IGT posted earnings that were slightly better than what the consensus of analysts had forecast but still the knee-jerk reaction to the announcement was to push the share price down some 10%. Net income for the period totaled $114.7 million compared to $141.1 million in the prior year and earnings per share was $0.32 compared to last year’s $0.38 per share.

Still, analysts took into account that the large majority of casinos had completed changing their slot machines from a coin base to a ticket-in/ticket-out basis, the greatest factor in moving IGT’s earnings in the previous year. Consensus estimate was for earnings per share to be $0.30.

Although domestic product sales were relatively flat for the period, the company saw a large jump in international sales. Domestic products shipped reached 12,300 units while international sales jumped to 11,800 units. Revenues from international sales moved to a record $91.9 million, an increase of 27% over 2004. However, this failed to make up for the decline in North American product sales revenues that totaled $189.6 million compared to last year’s $243.1 million.

TJ Matthews, company chairman and CEO, remarked, "Despite the challenging domestic environment in which we operate, we continue to execute well, both operationally and strategically. Our international operations are poised to deliver another record-breaking year in terms of both revenues and operating income."

He added that there has been a favorable market response to recently introduced products in the domestic market and that the "recently announced alliance with Progressive Gaming International and Shuffle Master will further enable us to extend our product offerings into the table games area of the casino."

Following the announcement, Robin Farley, the chief gaming analyst at UBS investment services, said she was lowering her target share price to $32 from the previous $34 but maintained her rating on the shares as "Buy 2."

Aztar Corp.

It didn’t take long for the investment that Aztar Corporation (AZR) made in its Tropicana Atlantic City property to show results. The Quarter, as it is called, added 502 new rooms in a hotel tower, and was credited with boosting casino revenue at the facility by 25%.

Diluted earnings for the quarter, after positive adjustments for construction accident insurance recoveries, was $0.41 per share compared to last year’s $0.25 per share, also including certain adjustments that were negative in nature.

Consolidated EBITDA (earnings before interest, taxes, depreciation and amortization) rose to $54.2 million compared to last year’s $46.7 million.

"During the second fiscal quarter, casino revenue at the Tropicana in Atlantic City grew 25%, significantly outpacing the market," said Robert M. Haddock, the company’s new chairman, president and CEO.

"That level of revenue growth allowed the property to more than cover the incremental operating costs associated with the expansion and to deliver a 25% EBITDA margin."

A 6% increase in EBITDA was experienced at the company’s Tropicana Las Vegas primarily due to "very strong room occupancy and average daily rate," Haddock said. However, he gave no incite into the plans for the Las Vegas property that has failed to keep up with the more recent Strip upgrades.

MTR Gaming

Net income for the third quarter fell to nearly half last year’s figures because of increasing slot machine competition at Mountaineer Racetrack and Casino, according to officials of MTR Gaming Group Inc. (MNTG).

Total revenues for the quarter rose 18% to $97.8 million but net income dropped to $1.6 million or $0.06 per share compared to last year’s $3 million or $0.10 per share.

Commenting on the report, Ted Arneault, president and CEO, said, "Obviously, we are concerned by the lack of revenue growth at our flagship property (Mountaineer). In anticipation of new competition, such as West Virginia’s Limited Video Lottery in bars and fraternal organization and Pennsylvania’s new slot law, we built a luxury hotel, a conference center, a first-class spa, a renowned steak house and other amenities in order to differentiate our resort product from these new forms of competition."

Helping to boost the company’s revenues was the operation of Binion’s Gambling Hall in Downtown Las Vegas, a property that was managed by the Harrah’s Entertainment Inc. organization until the past spring. Total revenues from that facility reached $763,000 compared to $587,000 recorded in the previous year.

Just last week, Binion’s was the site of the World Series of Poker two-day final competition, an attraction that was strongly received both on site and on television. Since this will be the last time the property is used for the World Series of Poker, company officials are making plans to introduce a similar tournament called the World Poker Classic in 2006.