International Game Technology (IGT)
reported second-quarter earnings of 36 cents per share, which beat
the Zacks Consensus Estimate by 6 cents. Earnings per share surged
33.3% year over year and 28.6% sequentially due to strong revenue
growth in the second quarter.BALLY TECH INC (BYI): Free Stock Analysis
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Revenues increased 10.9% year over year and 14.2% sequentially to
$600.0 million in the quarter. Year-over-year growth was primarily
driven by higher product sales and strong performance from
interactive businesses. Revenues were well ahead of the Zacks
Consensus Estimate of $572.0 million.
Gaming Operations revenues declined 4.4% year over year and 4.8%
from the previous quarter to $254.3 million in the quarter. The
decline was primarily due to lower MegaJackpots revenues, partially
offset by higher lease operations revenues.
Average revenue per unit per day decreased 5.9% year over year,
but climbed 5.3% sequentially to $49.26 in the reported quarter.
Gaming Operations installed base totaled 56,700 units, up 600 units
from the year-ago quarter, but declined 100 units from the previous
Product Sales soared 15.9% year over year and 18.8% on a
sequential basis to $279.0 million. Year-over-year growth was
primarily attributable to higher North American machine sales
related to Canada, Ill. and Ohio.
IGT shipped 14,300 machines during the quarter compared with
10,200 units in the year-ago quarter and 10,700 units in the
previous quarter. Average machine sales price was $14,100 versus
$14,800 in the year-ago quarter and $15,800 in the previous
IGT witnessed stupendous growth in the Interactive segment.
Revenues surged 94.5% year over year and 26.1% sequentially to
$66.7 million. Social gaming revenues were $54.3 million, while
IGTi revenues were $12.4 million in the reported quarter.
Revenues from North America stood at $475.7 million, up 14.5% year
over year while international operations revenues decreased 1.1%
over the same period to $124.3 million in the reported
Gross margin decreased 150 basis points ("bps") from the year-ago
quarter and 200 bps from the previous quarter to 51.6% in the
second quarter. The margin contraction was primarily due to lower
product sales margin. Lower average sales price, unfavorable
product mix and higher marketing expenditure hurt product margin in
In the second quarter, operating expenses as a percentage of
revenues declined 160 bps from the year-ago quarter and 220 bps
from the previous quarter to 30.0%. Selling, general and
administrative (SG&A), research & development (R&D) and
depreciation & amortization (D&A) expenses declined 170
bps, 50 bps and 30 bps, respectively from the year-ago quarter
reflecting significant cost control. On a sequential basis,
SG&A, R&D and D&A contracted 60 bps, 70 bps and 30 bps,
The weak gross margin base was partially offset by
lower-than-expected increase in operating expenses. As a result,
operating margin declined modestly, 10 bps from the year-ago
quarter but improved 110 bps from the previous quarter to
Net income as a percentage of revenues was 15.9% compared with
14.7% in the year-ago quarter and 14.5% in the previous
Balance Sheet and Cash Flow
As of Mar 31, 2013, cash and investments (including restricted
cash) were $312.3 million versus $277.0 million, as of Dec 31,
2012. Long-term debt stood at $1.83 billion, up from $1.78 in the
Net operating cash flow was $88.0 million in the quarter compared
with $94.5 million in the previous quarter. Free cash flow was
$69.2 million compared with $56.9 million in the reported
IGT recently entered into a new 5-year credit facility worth $1.0
billion, which not only boosted its liquidity but also lowered
overall borrowing costs by 20.0%.
IGT repurchased stocks worth $75.0 million and paid dividends
worth $19.0 million.
For fiscal 2013, IGT raised its earnings outlook in the range of
$1.26 to $1.32 per share (from $1.20 to $1.30 per share), which
implies a growth rate of 22.0% to 28.0% over 2012.
We believe that increasing investment in product development will
increase operating costs going forward. This will remain an
overhang on the stock in the near term. Moreover, increased
competition from Bally Technologies Inc. (BYI),WMS Industries Inc. (WMS)
and Zynga Inc. (ZNGA) in its core as well as interactive markets 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 performance from
the interactive business are expected to drive growth going
Currently, IGT carries a Zacks Rank #3 (Hold).