Wednesday, November 03, 2004
Copyright © Las Vegas Review-Journal

FOURTH-QUARTER REPORT: IGT lines up winning numbers

Strong earnings performance helps fuel stock price jump for slot maker

Actor Drew Carey makes an appearance at the IGT booth to introduce a new slot machine bearing his likeness during the Global Gaming Expo at the Las Vegas Convention Center. Photo by John Gurzinski.

A ho-hum response from several Wall Street analysts Tuesday did not deter investors from backing International Game Technology, whose stock value increased by 5.44 percent the day it released its fourth-quarter earnings.

IGT shares closed Tuesday's trading session at $34.89, up $1.80. The jump came after the Reno-based gaming manufacturer announced quarterly revenue of $621.7 million, a 13.5 percent gain from last year's $547.5 million.

Earnings before interest, taxes, depreciation and amortization, a financial measure commonly used to evaluate a company's financial performance, were $227 million in the quarter, up 5.3 percent from last year's $215.6 million.

Maureen Mullarkey, IGT's chief financial officer, credited the growth to record gaming operations revenue, improved international results and strengthened product sales caused by higher price points and product diversity. The company is working to place more units in high-earning jurisdictions such as Arizona, California and Connecticut, she added, to capitalize on opportunities in those areas.

Chief Executive Officer TJ Matthews said IGT also benefited from entering three new markets, Alabama, New York and Oklahoma, during the last fiscal year.

"These new markets created incremental growth of over 2,000 revenue machines with a potential for more placement in the near future," said Matthews, adding that more opportunities could open today in California, Pennsylvania, Oklahoma and Florida pending the outcome of several election measures.

"When we talk with you next year at this time, I anticipate we'll have additional markets to talk about as we move closer to our stated expectation that there will be an installed base of more than 1 million machines in North America by the year 2009," Matthews said.

Macau, Japan, Russia and the United Kingdom could drive international growth, he added.

IGT's fourth-quarter net income was $54.3 million during the quarter, or 15 cents per share, down dramatically from last year's $108.3 million, or 31 cents per share.

Those totals were affected by a $77 million debt reduction recorded in July and the addition of a $3.6 million tax credit. Excluding those adjustments, the company's quarterly net income was $127.7 million, or 35 cents per share.

In a note to investors, Merrill Lynch gaming analyst David Anders wrote that IGT fell short of estimates in operating income, gross margin and international product shipments. Merrill Lynch's earnings per share estimate for next year at IGT stayed at $1.45, but Anders extended the stock's "sell" rating because investors, "may be underestimating the risk profile of the company's growth prospects."

Goldman Sachs Group analyst Steve Kent called the quarter "relatively mediocre" but maintained his firm's neutral rating for IGT shares.

"We acknowledge that 2005 will be a relatively slower year of game sales for IGT, but we believe the company's solid product, 70 percent market share and numerous growth opportunities ... will lead to double-digit earnings growth over the next few years," Kent wrote.

The company said in August it will construct a new 600,000-square-foot building near Buffalo Drive and Sunset Road. That building, which is scheduled to open in fall 2006, will replace nine separate IGT sites in Southern Nevada, though the company does not plan to adjust its 750-person local work force.

IGT has approximately 5,000 employees, mostly in Northern Nevada, Mullarkey said.