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IGT suffers profit, earnings decline

International Game Technology missed its first-quarter earnings estimates and saw profits decline 42 percent from a year ago — but things could have been worse.

The Reno-based slot machine giant said Thursday it earned $65.7 million, or 22 cents a share, in the three-month period ended Dec. 31, down from $113.7 million, or 36 cents a share, a year earlier. The results include 7 cents a share in one-time charges.

Analysts polled by FactSet Research estimated IGT would earn 26 cents a share.

"Results were modestly below our expectations, with revenue slightly ahead offset by lower-than-expected profitability," Oppenheimer gaming analyst David Katz told investors. "Overall, the quarter’s results did not suggest that we need to make any significant change to our thesis."

Gaming researchers said IGT has already borne the brunt of the poor economy. The company’s earnings were hurt last year as casinos did not invest on new gaming devices at the pace they did a few years ago. IGT’s stock price lost more than 80 percent of its value on the New York Stock Exchange in 2008.

Revenues fell 6.8 percent to $602 million from $646 million.

The company’s revenue from North American slot machine sales was $268 million, compared with $295 million a year ago. International revenue declined to $313 million from $332 million. Slot machine sales fell to 15,700 games, compared with 20,200 games a year ago.

IGT has been cutting costs since last fall in an attempt to save more than $100 million. In the quarter, operating expenses declined 18 percent.

"While we expect continued softness in the domestic slot market, we believe management is taking a proactive approach in order to maintain margins." Stifel Nicolaus gaming analyst Steven Wieczynski told investors in a research note before IGT released its results.

"Cost cutting and restructuring efforts should allow IGT to turn revenues into profits at a swifter pace once the gaming environment improves," Wieczynski said. "We believe investors are putting too much emphasis on the near term and not focusing on the potential long-term growth story, which revolves around the next replacement cycle and gaming expansion."

IGT Chairman and Chief Executive Officer TJ Matthews blamed the souring economy for the results.

"This is the worst economy in decades," he said during a conference call with analysts. "We’ve completed our initial cost reduction efforts and will continue to look for more ways to save. We’ve overcome difficult conditions and significant marketplace changes in the past. I’m confident we’re going to do so again."

Several analysts agreed with Matthews.

"Overall, IGT’s results were mixed against very low expectations," Susquehanna gaming analyst Robert LaFleur said in a note to investors. "We think there is a lot of noise in the quarter, but it is clear that business fundamentals remain weak."

Other analysts were not as positive. Macquarie Capital gaming analyst Joel Simkins said it was unclear when new slot machine technology, such as server-based gaming, will be fully integrated into the casino industry. IGT owns a contract to place a server-based gaming system at Aria, the centerpiece hotel-casino at MGM Mirage’s $9.1 billion CityCenter development, which opens at the end of the year.

Meanwhile, Simkins is advising investors to avoid IGT and consider the stock of slot-machine rivals Bally Technologies and WMS as potential investments.

"While IGT maintains a powerful global market presence and is taking baby steps to realign its cost structure, we foresee continued significant industry headwinds and market share erosion," Simkins said.

Shares of IGT closed at $11.58, up 1 cent, or 0.09 percent, Thursday on the New York Stock Exchange.

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871.

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