International Game Technology (
reported strong second quarter 2012 results, with earnings of 27
cents per share beating the Zacks Consensus Estimate by a couple of
cents. Earnings increased 22.7% year over year, primarily
attributed to higher revenue growth in the quarter.
Total revenue increased 13.5% year over year to $541.2 million
in the second quarter and beat the Zacks Consensus Estimate of
$519.0 million. The better-than-expected result was primarily
driven by higher North America product sales and interactive
Gaming Operations contributed 55.5% to the total revenue whereas
Product Sales accounted for the remaining 44.5%. Revenues from
North America stood at $415.5 million, up 13.0% year over year,
while revenue from international operations increased 15.2% year
over year to $125.7 million in the reported quarter.
Gaming Operations revenues increased 11.3% year over year to
$300.4 million in the second quarter, primarily attributed to
strong performance from the interactive business and higher
installed base. Average revenue per unit (ARPU) in the reported
quarter increased 4.8% year over year to $59.09. At the end of the
quarter, the company's Gaming Operations installed base totalled
56,100 units, up 3,600 units from the year-ago quarter.
Product Sales surged 16.2% year over year to $240.8 million,
primarily due to higher domestic replacement sales (up 32.0% year
over year). The company shipped 10,200 machines during the quarter,
down from the prior-year shipment of 9,000 units. Average revenue
per unit (ARPU) in the reported quarter was $23,600 versus $23,000
in the prior-year quarter. Average machine sales price was $15,800
versus $14,600 in the year-ago quarter.
Non-GAAP gross profit increased 11.0% year over year to $313.6
million. However, gross margin decreased 120 basis points (bps) to
57.9% in the second quarter. Gaming gross margin decreased 150 bps
year over year to 60.5%, while Product sales gross margin
contracted 80 bps on a year-over-year basis to 54.8% in the
Operating expenses were $171.7 million, up 13.5% year over year
and as a percentage of revenue, operating expenses remained flat on
a year-over-year basis in the reported quarter. Selling, general
and administrative (SG&A) expense climbed 22.7% year over year,
while research & development (R&D) expense increased 13.6%
in the quarter.
Operating income increased 9.8% year over year to $144.2
million, primarily on the back of strong revenue growth. However,
operating margin decreased 100 bps to 27% in the quarter due to
higher-than-expected operating expenses. Net income on a
non-GAAP basis came in at $79.5 million, up 17.4% year over year.
Net income margin increased 50 bps to 14.7% in the reported
As of March 31, 2012, cash and investments (including restricted
cash) were $360.6 million versus $587.3 million, as of December 31,
2011. Long-term debt stood at $1.66 billion at the end of the
quarter. During the quarter, IGT repurchased 3.0 million shares, at
an average price of $15.43 per share, totaling $46.0 million.
During the quarter, IGT announced the acquisition of online
social gaming company Double Down Interactive LLC for approximately
$500.0 million. Seattle, Washington-based Double Down is famous for
its online casino game on Facebook. The game has been ranked among
the top four social games last year by Facebook.
We believe that the IGT-Double Down combination will boost the
company's online presence, driving top-line growth going forward.
Moreover, the acquisition will also expand its gaming portfolio
beyond the casino floor to Facebook that in turn will lower IGT's
dependence on physical product sales going forward.
For fiscal 2012, IGT expects earnings in the range of 98 cents
to $1.04 per share (prior outlook 93 cents to $1.03 per share).
Currently, the Zacks Consensus Estimate is pegged at $1.00,
slightly above the mid-point of the guided range.
For fiscal 2012, IGT expects global gaming operations installed
base to grow in the high-single digit range and revenues to grow in
the low-single digit range, excluding the impact of interactive
businesses. Gaming operations gross margins is expected to improve
in the second half of the year. For fiscal 2012, IGT expects gaming
operations gross margin to exceed the last year level of 60.7%.
For the second half of 2012, IGT expects continued growth in
units and average selling prices, both domestically and
internationally. The company expects gross margin to be at or
slightly below last year's strong margin performance, mainly due to
unfavorable product mix.
We believe that IGT's strong second quarter results reflect an
improving domestic gaming environment. We believe that
international expansion, 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 over the long term.
IGT is expanding its presence in the online and social gaming
market. Besides Double Down, the company also acquired
Stockholm-based Entraction Holding AB in order to supplement its
position in the legalized interactive gaming market. We believe
that the addition of poker, bingo, casino and sports betting will
boost IGT's interactive gaming portfolio going forward.
The company has also ventured into the cloud computing arena
through its IGT Cloud. With the IGT Cloud services, we expect IGT
to gain traction in the casino gaming industry, as it would likely
be well accepted by new casino properties, thereby improving the
company's top line going forward.
However, we believe that fewer new openings and increased
Bally Technologies Inc. (
WMS Industries Inc. (
will keep the stock range bound in the near term.
We have a Neutral recommendation on the stock over the long term
(6-12 months). Currently, IGT carries a Zacks #3 Rank, which
implies a 'Hold' rating in the short term.
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