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RENO, Nevada -- Despite a year in which slot machine sales seemed almost nonexistent, industry giant International Game Technology prospered.
The Reno-based slot machine maker on Tuesday reported net income and earnings per share increases in both the fourth quarter and fiscal 2006. An 11 percent profit in gaming operations boosted quarterly earnings.
Gaming operations include wide-area and local-area progressive games such as Megabucks, which link slot machines at multiple casinos.
IGT reported fourth-quarter net income of $114.9 million, or 33 cents per share, in the quarter ended Sept. 30, up from net income of $105.4 million, or 30 cents per share, a year earlier. Analysts polled by Thomson First Call had predicted IGT would earn 34 cents a share in the three-month period.
The company's earnings per share were hurt by operating expenses, primarily an $11 million research and development charge.
"Overall, it was a very solid quarter for IGT, with better than expected revenues," Goldman Sachs gaming analyst Steven Kent said in a note to investors. "The quarterly results are a great example of the diversity of IGT's business model, with slot machines, system sales and participation games for traditional and nontraditional markets all balancing the growth. IGT is well-positioned for a much-improved slot industry over the next few years."
Quarterly revenue rose 5 percent to $638.7 million from $607.6 million.
For the year, IGT's net income was $473.6 million, up almost 9 percent from 2005.
Twelve-month revenue was $2.5 billion, a 6 percent increase from almost $2.37 billion in fiscal 2005.
Sales of the company's slot machines dipped somewhat for both the quarter and the year. But the machines IGT did sell were newer models that brought a higher price per unit than in previous years.
Product sales totaled $304.9 million in the fourth quarter, a 2 percent jump, and $1.26 billion for the year, an increase of 7 percent. Product sales also included slot machine parts and gaming systems.
However, the total number of games sold decreased. In the fourth quarter, IGT sold 22,400 slots both domestically and internationally, down from 39,900 machines for the same quarter a year ago. For the year, IGT sold 112,000 games, down from 141,900 in 2005.
"Our margins expanded," IGT Chairman TJ Matthews said. "Our ability to thrive in spite of a sluggish year for new or expanding domestic markets is the result of our industry-leading product development (and) expansion in nontraditional and international markets."
IGT said its primary growth came from sales of slot machines in Mexico, Delaware, New York, Oklahoma and California.
In addition, Matthews said IGT had yearly cash flow of $997.5 million, reported as earnings before interest, taxes, depreciation and amortization.
"We returned nearly $600 million to shareholders in the form of stock repurchase and dividends in fiscal 2006," Matthews said.
The company's results were a marked improvement from a year ago, when year-over-year revenue fell 4 percent and net income was off 10.7 percent due to diminished product sales. In 2005, the country was absent new gambling markets and IGT lost revenues late in the year due to the Gulf Coast hurricanes, where slot machines in which the company participated in the revenues were washed away by the storms.
With Pennsylvania adding casinos and the potential of some 65,000 new slot machines by 2007, gaming analysts said IGT has a bright future.
"Bottom-line results were solid, with domestic unit shipments moving higher and the installed base continuing to grow in new markets," CIBC gaming analyst David Katz said. "Both product sales and gaming operations were below our forecast. Gross margins on both product sales and gaming operations were up nicely year over year."
IGT announced its earnings before trading began on the New York Stock Exchange Tuesday. The company's shares traded down most of the day, closing at $40.99, down $2.20 or 5.09 percent. Almost 8 million shares were traded, more than three times the average daily volume.
Morgan Joseph gaming analyst Adam Steinberg predicted IGT's shares could increase in value.
"Potential drivers for future growth include product placements into Yonkers and Aqueduct racetracks in New York, as well as placements into Pennsylvania and Florida," Steinberg said. "We anticipate sales to Japan to accelerate during the second half of fiscal 2007."
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