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Best of Howard Stutz

Gaming Guru

Howard Stutz

IGT reverses loss, but sees revenues slide

12 November 2010

LAS VEGAS, Nevada -- Slot machine giant International Game Technology reversed a fourth-quarter net loss from a year ago, but diminished sales because of casinos' continued disinterest in new purchases caused quarterly revenues to slide 3 percent.

The Reno-based company, which controls about 60 percent of the North American slot machine market, said Tuesday its net income was $19.9 million during the quarter that ended Sept. 30, or earnings of 7 cents per share. A year ago, IGT lost $28.6 million, or 10 cents a share.

Total company revenues were $496 million in the quarter compared with $512.3 million a year ago. The company said 54 percent of its total revenues came from slot machines where IGT shares in the proceeds produced by the games with casinos.

Direct sales of slot machines, however, declined 1 percent to $228 million compared to a year ago. For all of fiscal 2010, IGT's revenues from slot machine sales were $866 million, off 4 percent.

The company said fewer North American casino openings caused sales to slip, but the figures were partially offset by improved international sales.

IGT's gaming operations revenue declined 5 percent to $268 million, because fewer machines are being used and casinos have shifted to lower-yielding machines. The operations division had 57,000 slot machines under lease during the quarter, which was a decline of 1,800 games compared with the third quarter.

The removal of slot machines from charitable bingo operations in Alabama, which were closed by the state's governor, also reduced the company's total number of games in the field.

During a conference call with analysts and investors, IGT Chief Executive Officer Patti Hart said casinos operators are beginning to see improving revenues, and, as such, will "begin refreshing their slot floors."

Credit Suisse gaming analyst Joel Simkins told investors it had been expected that IGT's sales figures would fall in the quarter, based on previously announced sales figures by competitors Bally Technologies and WMS Industries, which reported earnings earlier in the month.

"Product sales gross margins of 53 percent came in above estimates ... reflecting cost-cutting and efficiency measures the company has been rolling out over the past year," Simkins said.

Hart said in a statement the company was able to maintain its financial performance despite a challenging economy.

"We set the company on a course to achieve greater financial and operational performance in the future," Hart said. "We improved margins, generated more cash and improved our balance sheet versus last year."

IGT announced earnings after trading on the New York Stock Exchange closed Tuesday. Shares of the company fell 3 cents, or 0.18 percent, to close at $16.32.

Stifel Nicolaus gaming analyst Steven Wieczynski said IGT's focus on streamlining the corporate cost structure and reducing unnecessary spending in research and development helped offset the under performance in product sales.

"We still believe IGT is in an enviable position to grow the company despite ongoing sluggishness in the domestic replacement market," Wieczynski said.
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