International Game Technology
) reported third-quarter adjusted earnings of 33 cents per share,
beating the Zacks Consensus Estimate by a penny. Reported
earnings surged 43.5% from the year-ago quarter but were down
Although revenues increased 8.7% year over year to $579.0
million, it lagged the Zacks Consensus Estimate of $586.0
million. Sequentially, revenues were down 3.5%. The
year-over-year growth was primarily driven by higher product
sales and strong performance from interactive businesses which
offset the revenue decline in the Gaming Operations segment.
Revenues from Gaming Operations declined 4.2% year over year
and 2.8% sequentially to $247.3 million. The decline was
primarily due to lower-than-expected MegaJackpots revenues.
Average revenue per unit per day decreased 4.0% from the
year-ago quarter and 3.0% sequentially to $47.96 in the quarter.
Gaming Operations installed base of 56,700 units was down from
56,900 units in the year ago quarter.
Product Sales soared 11.9% year over year to $259.2 million
primarily attributable to higher North American machine sales,
especially Canada, and non-machine sales. However, revenues were
down 7.1% sequentially.
IGT shipped 13,400 machines during the quarter compared with
11,600 units in the year-ago quarter. Average machine sales price
was $13,300 versus $13,700 in the year-ago quarter primarily due
to higher mix of low-priced VLT sales.
IGT witnessed stupendous growth in the Interactive segment.
Revenues surged 68.6% year over year to $72.6 million.
Sequentially, revenues were up a modest 8.7%. Social gaming
revenues were $61.4 million, while IGTi revenues were $11.1
million in the reported quarter.
IGT's DoubleDown Casino was the top grossing game on
). It replaced
) poker game to claim the top spot in the social casino game
segment. Moreover, DoubleDown's mobile platform was the
top-grossing social casino app on
Gross profit increased 11.6% year over year to $339.5 million
while margins came in at 58.6%, which was up 150 basis points
(bps) primarily due to higher revenues from the company's
operating segments. Moreover, lower jackpot expenses and
depreciation also helped IGT's gaming gross margins.
In the third quarter, adjusted operating expenses as a
percentage of revenues declined 80 bps from the year-ago quarter
from the previous quarter to 32.0%.
As a result, adjusted operating income increased 19.2% from
the year-ago quarter to $154.1 million and margins came in at
26.6% (up 230 bps on a year-over-year basis)
Adjusted net income increased 26.1% from the year-ago quarter
to $86.4 million. However, net income decreased 9.1% on a
Balance Sheet and Cash Flow
IGT exited the third quarter with cash and investments
(including restricted cash) of $302.1 million versus $312.3
million in the previous quarter. Long-term debt stood at $835.2
The company reported fiscal year-to-date operating cash flow
of $335.2 million and free cash flow amounted to $182.6 million
after paying dividends worth $55.5 million. The company announced
a 50% increase in its dividend payment.
IGT repurchased shares worth approximately $6 million at an
average price of $17.03 per share.
For fiscal 2013, IGT reiterated its earnings outlook in the
range of $1.26 to $1.32 per share, which implies 22.0% to 28.0%
growth rate 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 its peers 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, contract wins, and strong performance
from the interactive business are expected to drive growth, going
Currently, IGT carries a Zacks Rank #3 (Hold).
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