International Game Technology
) reported dismal third quarter 2012 results, with earnings of 23
cents per share missing the Zacks Consensus Estimate by a nickel.
Earnings plunged 65.7% year over year hurt by higher operating
expenses in the quarter.
Total revenue increased 9.0% year over year to $532.8 million in
the quarter, primarily driven by higher North America product sales
and interactive businesses. However, reported revenue fell well
short of the Zacks Consensus Estimate of $560.0 million.
Gaming Operations revenue jumped 12.6% year over year to $301.2
million in the quarter, primarily due to strong performance of the
interactive business and higher installed base. Average revenue per
unit (ARPU) increased 5.4% year over year to $58.55. At the end of
the quarter, the company's Gaming Operations installed base totaled
56,900 units, up 3,600 units from the year-ago quarter.
Product Sales climbed 4.5% year over year to $2 million,
primarily due to higher domestic replacement sales (up 53.1% year
over year). IGT shipped 11,600 machines during the quarter compared
with 8,900 units in the year-ago quarter. ARPU in the reported
quarter was $20,000 versus $24,900 in the prior-year quarter.
Average machine sales price was $13,700 versus $15,400 in the
Revenues from North America stood at $416.0 million, up 14.3%
year over year, while international operations revenue decreased
6.6% year over year to $116.8 million in the reported quarter.
Gross profit increased 5.0% year over year to $302.6 million.
However, gross margin decreased 220 basis points (bps) to 56.8% in
the third quarter. Gaming gross margin decreased 240 bps year over
year to 59.2%, while Product sales gross margin contracted 230 bps
on a year-over-year basis to 53.7% in the quarter.
Operating expenses were $175.0 million, up 18.4% year over year
and as a percentage of revenue, operating expenses jumped 260 bps
annually in the reported quarter.
Operating income declined 8.2% year over year to $129.3 million,
primarily attributed to higher operating expenses. Operating margin
decreased 450 bps to 24.3% in the quarter. Net income decreased
10.7% year over year to $68.5 million in the reported quarter.
As of June 30, 2012, cash and investments (including restricted
cash) were $327.5 million versus $360.6 million, as of March 31,
2011. Long-term debt stood at $1.97 billion, up from $1.66 in the
previous quarter, reflecting increased borrowings under the
company's revolving credit facility.
During the quarter, IGT repurchased 2.0 million shares for an
average price of $14.48 per share, totaling $25.0 million. IGT
announced a new $1.0 billion share repurchase authorization and
entered into a $400 million accelerated stock buyback (ASB)
agreement to repurchase its common stock.
IGT did not provide any specific earnings guidance for the
fourth quarter. The company expects Gaming operations gross margin
to be approximately 62.0% for the fourth quarter. Product sales
gross margin is expected to be 52.0% for the fourth quarter of
For fiscal 2012, IGT reiterated its earnings outlook, which is
expected to remain in the range of 98 cents to $1.04 per share.
We believe that increasing investment in product development
will drive operating costs going forward. This will remain an
overhang on the stock in the near term. Moreover, fewer new
openings and increased competition from
Bally Technologies Inc.
WMS Industries Inc.
) will keep the stock range bound in the near term.
However, improving domestic gaming environment, international
expansion opportunities, an impressive product portfolio,
cost-cutting initiatives, lesser dependence on the domestic machine
replacement cycle, new contract wins, and strong growth from the
interactive business will drive growth going forward.
We have a Neutral recommendation on the stock over the long term
(6-12 months). Currently, IGT carries a Zacks #2 Rank, which
implies a Buy rating in the short term.
BALLY TECH INC (BYI): Free Stock Analysis
INTL GAME TECH (IGT): Free Stock Analysis
WMS INDS INC (WMS): Free Stock Analysis Report
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