Fewer slot replacements hurt IGT's quarter

Jan 27, 2009 5:04 PM
Earnings by Ray Poirier | With fewer people going to casinos during this economic slump, the demand from operators to update their casino floors has slowed. So it was no surprise that the first quarter was a difficult one for International Game Technology (IGT), the industry’s largest supplier of gaming machines.

For the quarter that ended on Dec. 31, 2008, the company said it had revenue of $602 million, down 6% from last year’s $646 million. Earnings fell to $65.7 million or $0.22 per share from last year’s $113.7 million or $0.36 per share.

The company said part of the loss was due to a $20.4 million charge that reduced earnings by $0.07 per share. The charge was related to restructuring expenses, fixed asset charges and other write-downs.

Speaking during a conference call, TJ Matthews, company chairman and CEO, said, "This is the worst economy in decades. We’ve completed our initial cost reduction efforts and will continue to look for more ways to save. We’ve overcome difficult conditions and significant marketplace changes in the past. I’m confident we’re going to again."

Analysts were mixed in their views of the recent quarter.

Although he felt the quarterly results, "were modestly below our expectations, with revenue slightly ahead," overall the quarter’s results did not suggest that we need to make any significant change to our thesis," said Davie Katz of Oppenheimer.

Steve Wieczynski of Stifel Nicolaus noted that "While we expect continued softness in the domestic slot market, we believe management is taking a proactive approach in order to maintain margins." He said he believes that cost cutting and restructuring efforts "should allow IGT to turn revenues into profits at a swifter pace once the gaming environment improves."

Robin Farley of UBS Investment Research said she felt the company missed Wall Street estimates by more than she anticipated and that even her adjusted profit estimate that adds back the seven cents per share in special items is not a true picture of performance.

"We would not consider this a 29-cents per share quarter as we do not view many of the items as extraordinary or non-recurring," she wrote in a clients’ note.

And still puzzling said some analysts was the influence that sever-based gaming, an area that has taken much of IGT’s research and development efforts in recent years, will be fully integrated into the casino industry.