IGT earnings fall 44 percent

New International Game Technology Chief Executive Officer Patti Hart knew when she took over the job 23 days ago, the Reno-based slot machine giant was facing challenges.

Casino customers aren’t spending much money on gambling. As such, gaming executives are not replacing older slot machines while holding back on certain capital expenditures.

The result has blunted IGT’s earnings over the past year.

Still, Hart, who has been a member of IGT’s board of directors since 2006 and was conducting her first quarterly earnings report as head of the company Thursday, said the industry’s leading slot machine manufacturer was moving ahead.

IGT said second-quarter net income fell by 44 percent in the period that ended March 31. The company reported profits of $38.3 million or 13 cents a share compared with $68.4 million or 22 cents a share in the same period a year ago. Analysts polled by Thomson Reuters expected the company to earn 22 cents a share.

“Our second quarter saw continued difficult economic conditions worldwide impacting our financial results,” Hart said in a statement. “But a number of jurisdictions are continuing to see stability in play levels.”

Hart, and former IGT CEO TJ Matthews, who is still the company’s chairman, told analysts and investors the decline in consumers’ playing levels appeared to be leveling off in some gambling markets, such as the Midwest.

“We think we are putting most of this behind us,” Matthews said.

IGT’s overall company revenues declined 17 percent in the quarter to $475.7 million, compared with $573.2 million.

In total slot machine sales, IGT shipped 12,600 games in the quarter, 500 more than a year ago. However, sales slipped by 1,000 slot machines to North America, which was made up for by the shipment of 1,500 more games internationally.

Susquehana gaming analyst Robert LaFleur said Wall Street had high expectations for IGT heading into the quarter. He criticized what he called IGT’s “lackluster product sales,” which stood in “stark contrast” to results posted by slot machine rival WMS Industries earlier this week.

“While we expect Ms. Hart to get a honeymoon period from the Street for a few quarters, tolerance for a string of quarters like this is probably limited,” LaFleur said.

Shares of IGT, traded on the New York Stock Exchange, closed at $11.30, up 12 cents or 1.07 percent.

“We remain cautious on the shares pending further insight from new management as to its approach to the increasing product momentum and overall strategic positioning of the company,” Oppenheimer gaming analyst David Katz told investors.

IGT laid off about 500 employees in November and another 200 in January. The company also slashed its regular quarterly dividend nearly 60 percent. The moves helped save IGT about $100 million annually.

“This quarter shows that the company is still in the midst of rightsizing its expense structure as well as dealing with a difficult replacement cycle,” Goldman Sachs gaming analyst Steven Kent told investors. “We had thought the company would have been able to cut more expenses out by this time.”

Hart said IGT is positioned to take advantage of opportunity when the economy improves.

IGT spent millions of dollars in the past few years developing server-based gaming, where slot machines throughout a casino are linked to a central server. Implementation of the technology has slowed because of the economy. The company will unveil a server-based slot machine floor at Aria in December. The 4,004-room hotel casino is the centerpiece of the $8.7 billion CityCenter development.

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

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