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Strong Q2 lottery performance enables IGT to surprise analysts

Updated August 4, 2020 - 4:21 pm

IGT’s diversity of products, especially its lottery business, enabled the London-based company to outperform analysts’ expectations for second-quarter earnings.

Executives with the company, a major slot machine manufacturer with a large presence in Nevada, said Tuesday they were hampered throughout the quarter by the coronavirus pandemic, which not only closed hundreds of casinos worldwide but also bars and restaurants where IGT dominates with bar-top slot machine products. Bar-top machines remain shut down in Nevada.

“Our second-quarter results reflect the intense impact of global lockdowns caused by the pandemic,” said Marco Sala, CEO of IGT. “That said, thanks to strong North America Lottery performance and our swift adoption of cost-saving and avoidance measures, we delivered better cash flow than we expected back in May.”

IGT’s lottery operation, headquartered in Providence, Rhode Island, supplies 40 of the 45 lottery operations in the United States. Sala said the company anticipated depressed revenue for the quarter but was surprised to generate more than $100 million in free cash flow in May. Executives believe government stimulus money may have helped boost sales of lottery tickets.

The results enabled IGT to beat analyst’s earnings projections by 2 cents a share.

“Our resilience is a direct consequence of the diversity of our global portfolio of products and solutions,” Sala said. “The improving trends we are currently seeing are encouraging, but we remain prudent with our planning. Our new organizational structure enhances our readiness to adapt to changes in market conditions.”

May not need more expense cutting

Sala said IGT has the ability to further cut expenses if necessary, but with casinos starting to reopen, that may not be needed. He noted that while some casinos have reopened in some markets — Central American properties have begun reopening, but South American casinos have not — floors are still operating at reduced volume with every other slot machine turned off in most markets to promote social distancing.

IGT generated about half the revenue in the quarter than it did in the second quarter of 2019.

The company reported a net loss of $94.1 million, $1.38 a share, on revenue of $637.5 million for the quarter ended June 30. A year ago, the company posted net income of $223.7 million, 2 cents a share, on revenue of $1.234 billion.

IGT announced Monday that it had bolstered its position in the growing sports wagering segment by expanding its agreement with the New York-based FanDuel Group, a fantasy sports company that also operates sportsbooks in some markets. FanDuel is not licensed in Nevada.

Under terms of the agreement, IGT’s PlaySports platform will power all of FanDuel Group’s new and existing retail FanDuel Sportsbooks across the U.S. through September 2024. Additionally, FanDuel Group agreed to offer IGT PlayDigital’s PlayCasino games in states where FanDuel Group online casinos operate.

Gaming industry analyst Carlo Santarelli of the New York office of Deutsche Bank, said in a Tuesday report to investors that he was puzzled by early stock price reaction to the IGT call.

“While we expect the gaming segment trends to remain subdued, we do believe consensus estimates currently account for a sluggish rebound, and we think current consensus adjusted (cash flow) is too low, thereby creating an inexpensive valuation dynamic on our forecasts at a time when gaming stocks are trading healthily through historical average multiples,” he said.

IGT shares, traded on the New York Stock Exchange, continued the downward trend noted by Santarelli in slightly-above-average volume Tuesday, off 77 cents, 7.3 percent. After hours, shares reversed and were up 9 cents, 0.9 percent, to reach $9.88 a share late in the afternoon.

Contact Richard N. Velotta at rvelotta@reviewjournal.com or 702-477-3893. Follow @RickVelotta on Twitter.

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