Friday, January 23, 2004
Copyright © Las Vegas Review-Journal

Earnings float higher again for IGT

Slot maker's fourth-quarter profits nearly double from year ago

Renee Dawn, right, of Bellingham, Wash., congratulates Pat Penn of San Antonio on winning $500 Wednesday playing an International Game Technology Wheel of Fortune slot at Harrah's. IGT said Thursday that fourth-quarter earnings nearly doubled from a year ago. Photo by Cariño Casas.

Driven by soaring sales of coinless slot machines, Reno-based International Game Technology on Thursday said fourth-quarter net income nearly doubled compared with a year earlier.

IGT said net income was $176.3 million, or 51 cents per share, in the quarter ended Dec. 31, up from net income of $91.6 million, or 26 cents per share, a year earlier.

Revenue rose 24 percent to $608.1 million from $489.6 million.

Deutsche Bank analyst Marc Falcone called the performance "a blowout quarter again" for the slot-making giant, with earnings per share about 10 percent ahead of Wall Street expectations.

He said increased sales to tribal casinos and Atlantic City casinos, better yield management and the proliferation of gaming across the country all drove the quarterly results.

Cash flow, a key measure of profitability in the gaming industry, increased to $24.2 million, up 65 percent from $14.7 million in the 2003 first fiscal quarter. Cash flow is generally defined as earnings before interest taxes, depreciation and amortization.

In a conference call with Wall Street analysts, IGT Chief Executive Officer T.J. Matthews said his company's commitment to growing slot sales not only drove top-line revenue, but also increased the efficiency of operations and profitability of the company.

Merrill Lynch analyst David Anders attributed the performance to strong product sales driven by outstanding international demand, higher profit margins on each machine sold and increased replacement sales. Many IGT machines use ticket-in/ticket-out technology and therefore are coinless.

International sales were up 126 percent compared with a year earlier, thanks largely to shipments to Japan. Domestic profit margins increased to 53 percent per machine, up from 48 percent a year earlier. And replacement sales were 16,400, compared with 15,200 the year before.

Falcone said having an extra week in the quarter and two months' contribution from the acquisition of Acres Gaming also helped produce the record results.

IGT's $143 million acquisition of Acres Gaming, best-known for making systems that can track gamblers' slot machine play and award player bonuses that can be redeemed directly from a machine, closed Oct. 27.

For the rest of the year, Anders said the outlook is positive, thanks largely to the potential for expanded gaming opportunities in states such as Pennsylvania, Maryland, Kansas and New York.

Deutsche Bank's Falcone agreed.

"We continue to think IGT will report record quarterly results over the next several quarters and we're encouraged by the prospects for expanded gaming in the U.S. with the start of the 2004 spring legislative sessions," he said.

As a result Deutsche Bank raised its price target for IGT shares to $43.

Analysts also said IGT will get a boost throughout 2004 from Harrah's Entertainment's agreement to buy 11,000 new coinless slots. Contract terms have not been disclosed, but slot costs have been estimated at about $10,000 each.

Still, Joe Greff, gaming analyst for Fulcrum Global Partners, an independent Wall Street investment research firm, warned in an advisory to analysts that IGT growth in 2004 could slow depending on possible delays or setbacks in legalizing gaming in additional domestic markets and a potential deceleration in replacement cycle for current slot machines in 2005.

IGT shares closed Thursday at $37.20, up 60 cents or 1.61 percent, for the day.