IGT's cost-cutting steps overshadow lower profits

LAS VEGAS, Nevada -- Profits earned by slot machine giant International Game Technology were cut in half during the fourth quarter, but Wall Street wasn't focused on results.

Investors had more interest in the cost-cutting measures being undertaken to right the Reno-based company's listing ship.

"We expect that the fourth-quarter results will be overlooked as investors know this would be a soft quarter and will rather focus on the direction the company is heading," Stifel Nicolaus gaming analyst Steven Wieczynski wrote in a research note shortly after IGT reported earnings Thursday.

During a conference call with analysts and investors, IGT Chairman and Chief Executive Officer TJ Matthews said the year had been one of the most difficult in the company's history. The company is focused on cost reductions, including previously announced job reductions, that could result in $100 million in annual savings.

"We're trying to be as gentle as possible with our employees," Matthews said. The company has offered a voluntary job separation program, which will be followed by involuntary layoffs. He hopes the total number of job reductions from the company's 5,400-person work force will be determined by mid-November.

IGT has been exploring other areas for cutbacks.

"We're looking at every expense area that could be refocused," Matthews said.

IGT's earnings in the quarter ended Sept. 30 were $52 million, or 18 cents a share. The company had earnings of $123 million, or 38 cents a share, in the same quarter a year ago. IGT said its net income included 10 cents a share in write-downs on investments.

Analysts polled by Thomson Reuters had expected the company to report earnings of 31 cents a share.

Revenues fell 4.7 percent, to $632 million from $663 million.

For the 12 months of fiscal 2008, IGT reported revenues of $2.5 billion, a 3.5 percent decline from 2007. Net income also fell. The company reported profits of $342.5 million, or $1.10 a share, compared with $508.2 million, or $1.51 a share, in 2007.

"On balance, revenues were in line to be slightly better than expected," Oppenheimer gaming analyst David Katz told investors. "At the corporate level, the expense base appears to be weighing on performance. We assume the company is addressing this with recent streamlining efforts."

Shares of IGT, which have fallen roughly 72 percent this year, closed at $12.01 on the New York Stock Exchange, down 56 cents, or 4.46 percent.