International Game Technology (
reported strong fourth quarter 2012 results, with earnings of 38
cents per share, surpassing the Zacks Consensus Estimate by 6
cents. Earnings jumped 58.3% year over year driven by strong
revenue growth during the quarter.
Total revenue surged 17.0% year over year to $631.1 million in
the quarter, primarily driven by higher product sales and strong
performance from interactive businesses. Revenue was well ahead
of the Zacks Consensus Estimate of $583.0 million.
Gaming Operations revenue declined 2.2% year over year to
$263.8 million in the quarter, primarily due to yield declines,
which were partially offset by higher installed base. Average
revenue per unit (ARPU) decreased 8.1% year over year to $50.83.
At the end of the quarter, the company's Gaming Operations
installed base totaled 57,100 units, up 3,200 units from the
Product Sales soared 22.0% year over year to $313.4 million,
primarily attributable to higher domestic replacement sales (up
66.7% year over year). IGT shipped 14,600 machines during the
quarter compared with 11,100 units in the year-ago quarter. ARPU
in the reported quarter was $21,600 versus $22,700 in the
prior-year quarter. Average machine sales price was $15,000
versus $15,200 in the year-ago quarter.
IGT provided separate results for the Interactive segment in
the fourth quarter. Interactive revenue was $53.9 million
compared with $13.4 million in the year-ago quarter. Social
gaming revenue was $35.8 million while IGTi revenue was $18.1
million in the reported quarter.
Revenues from North America stood at $453.8 million, up 14.5%
year over year while international operations revenue decreased
5.1% year over year to $123.4 million in the reported
Gross profit increased 15.5% year over year to $336.0 million.
However, gross margin decreased 70 basis points ("bps") to 53.2%
in the fourth quarter.
Gaming operations gross margin was up 440 bps from the
prior-year quarter. Product sales gross margin expanded 200 bps
in the quarter.
In the fourth quarter, operating expenses were $175.0 million,
up 12.8% year over year and as a percentage of revenue, operating
expenses declined 110 bps from the year-ago quarter. Higher
operating expenses resulted from increasing investment in the
Operating income increased 3.6% year over year to $129.3
million primarily attributed to higher revenue. Operating margin
decreased 260 bps to 20.5% in the quarter.
Net income increased 39.6% year over year to $101.9 million in
the reported quarter.
As of September 30, 2012, cash and investments (including
restricted cash) were $288.2 million versus $327.5 million, as of
June 30, 2012. Long-term debt stood at $1.85 billion, down from
$1.97 in the previous quarter.
For fiscal 2013, IGT forecasts earnings in the range of $1.20
to $1.30 per share (15.0% to 25.0% year-over-year growth).
Operating expenses as a percentage of revenue are expected to
remain flat on a year-over-year basis in fiscal 2013.
For fiscal 2013, IGT expects gaming operations revenue and
installed base to remain flat on a year-over-year basis. However,
gross margin and profit per unit are expected to show slight
Based on an anticipated strong performance from VLT business
in Canada, Ohio and Illinois, IGT expects product sales and gross
profit to increase at a double-digit range. However, unfavorable
product mix may keep gross margin under pressure for fiscal
On the interactive front, IGT expects DoubleDown to be
accretive by 2014.
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
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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INTL GAME TECH (IGT): Free Stock Analysis
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