IGT spins winner for third quarter

Wall Street analysts had been guarded in their approach toward slot machine giant International Game Technology heading in the company's planned announcement Thursday concerning third-quarter earnings.

The caution signs have been lifted.

Reno-based IGT said its net income improved to $136.4 million for the three-month period that ended June 30, an increase of 16 percent from $114.1 million a year ago. That figure translated into earnings per share of 41 cents, up from 33 cents for the third quarter of 2006 and ahead of the 39 cents predicted by analysts polled by Thomson First Call.

Revenue for IGT in the quarter was $706.5 million, up 15 percent from $612.4 million a year ago.

For the first nine months of fiscal 2007, IGT Chairman and CEO TJ Matthews said, the company has generated $564.9 million in cash flow from its operations and returned $742.4 million to shareholders in the form of share buybacks and dividends.

"The results clearly indicate that expectations for the quarter, and for IGT overall, had been set too low and earnings power of the company had not been reflected in the consensus," CIBC World Markets gaming analyst David Katz said in a note to investors. "The aggressive share repurchase is in line with our expectations, which also demonstrates management's confidence in the gradually improving fundamentals over the next several quarters."

The earnings news helped give shares of IGT a bit of a boost Thursday. Shares opened almost 5 percent higher initially on the New York Stock Exchange before settling back. IGT closed at $38.09, up 72 cents, or 1.93 percent. More than 8.7 million shares were traded, almost three times the average daily volume.

IGT said the revenue from slot machines where it shares in the proceeds with casinos had jumped 9 percent in the quarter to $341.9 million. In total, IGT's installed base of recurring revenue slot machines was 58,200 at the end of the quarter, 12,000 more machines than a year and a jump of 3,400 games from the second quarter.

The company said lease agreements with Mexico and New York and expanding casino operations in Oklahoma, Florida and California helped with the increase.

Direct slot machine sales produced record revenue of $364.6 million, a 23 percent increase from a year ago, largely due to increased sales into Japan.

Analysts believe Japan will offer the company more potential for slot machine sales in the future, while IGT executives say the slot maker is making inroads into other foreign opportunities.

"This quarter we also made strategic investments in China LotSynergy Holdings and Digideal Corporation, and entered into a significant five-year cooperation agreement with Casino Club of Argentina," Matthews said in a statement. "These important investments, coupled with our focus on maintaining IGT's position as a leading worldwide provider of innovative gaming technology, will further expand both our product and geographic reach."

Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski said the foreign markets will be IGT's strength until North American casino jurisdictions begin trading out older slot machines for more technological advanced games.

"The domestic replacement market will slow next year in front of server-based gaming," Wieczynski said. "However, most investors were not expecting much out of this quarter and IGT still put up a clean quarter that exceeded all expectations."

Another gaming analyst, Adam Steinberg of Morgan Joseph, wasn't ready give the all-clear signal. He moved his rating on IGT shares to a "hold" from a "buy," saying there aren't enough near-term catalysts domestically to drive to the stock price higher over the next few months. He also thought the company was losing market share to WMS Gaming and Aristocrat.

"IGT shares should trade in a tight range over the next several months until the next phase of the replacement cycle commences," Steinberg said.