'Challenging' quarter affects IGT's 2Q

Apr 22, 2008 7:00 PM

Earnings by Ray Poirier | While falling into the doghouse of most investors, the share price of International Game Technology (IGT) has been on a slide of late. A shrinking economy hasn’t provided much enthusiasm even to those who argued that gambling was recession-proof.

And since IGT shares had fallen to the mid-$30 level, there really wasn’t much reaction on Wall Street when the company missed their earnings estimates in a big way.

Late last week, the company said net profit during the second fiscal quarter that ended on March 31 fell to $68.4 million or $0.22 per share from last year’s $128.2 million or $0.38 per share.

Analysts had estimated the company would report earnings per share of $0.34.

Chairman and CEO T.J. Matthews called the period a "challenging one."

One analyst, David Katz of Oppenheimer, wrote in a clients’ note, "The weak domestic environment during the quarter and increased costs of future jackpot liabilities drove some of the downside, although weakness was broad across the business."

The company said revenue from product sales fell $36.4 million to $232.2 million with North America revenue accounting for much of the decline.

The company added that earnings for the next four quarters would also fall short of analysts’ estimates, although Matthews said he felt quarterly profit of between $0.35 and $0.40 could be expected.

At the close of trading on Friday, IGT shares were listed at $$35.51 each.

To offset some of the sting from current earnings, the company announced a "formal memorandum of understanding" pertaining to the installation of a server-based network and gaming management system products at CityCenter, the $8.2 billion project under construction on the Las Vegas Strip. The property is being built by MGM MIRAGE Inc. (MGM) and Dubai World.

A similar arrangement reportedly has been signed with Caesars Entertainment Corp.

With a decline in gaming machine replacements, manufacturers have been counting on the new server-based units to be installed on casino floors. Concern over customer acceptance and the cost of the new machines have slowed the changeover to the new machines.

Success at CityCenter is seen as providing a major launch pad for server-based games that are being developed by all major manufacturers.

Bill McBeath, president and COO of CityCenter’s casino resort, remarked, "We are always exploring new innovations that will both enhance the customer experience and set us apart in the industry."

International Game Technology will showcase 86 new gaming machines at the 2008 National Indian Gaming Association trade show being held this week at the San Diego Convention Center.

Steve Morro, IGT’s COO, explained, that, "We’re showing a number of new games and products that weren’t at G2E."