After a disastrous fourth quarter result,
Scientific Games Corp. (
SGMS
)
bounced back in the first quarter of 2012, reporting a profit of 2
cents. This also compared favorably with a loss of 8 cents per
share in the year-ago quarter. However, earnings in the reported
quarter fell well short of Zacks Consensus Estimate of 5 cents.
Quarter Details
Total revenue increased 19.3% year over year to $234.6 million,
primarily driven by strong instant ticket sales, higher sales of
lottery systems and terminals and better-than-expected service
revenues. Reported revenue also surpassed the Zacks Consensus
Estimate of $228.0 million.
Instant ticket revenue rose 8.3% year over year to $123.3
million, while sales of lottery systems and terminals soared 131.7%
year over year to $21.0 million. Service revenue increased 22.4%
year over year to $90.3 million.
Scientific Games' U.S. instant ticket retail sales increased
12.2% year over year in the quarter. U.S. lottery systems
customers' retail sales climbed 15.8% year over year in the first
quarter. This strong growth fully offset a sluggish 0.7% increase
in China Sports Lottery instant ticket retail sales and a 4.0%
decline in instant ticket retail sales in Italy during the reported
quarter.
Segment-wise, Printed Products Group revenues were up 8.5% year
over year to $125.5 million, primarily due to strong retail sales
in the U.S. (particularly in Illinois and Florida) and certain
international jurisdictions, mainly in Ukraine and U.K.
Lottery Systems Group revenues increased 14.3% year over year to
$64.5 million, primarily due to higher sales of software and
hardware to international customers and higher U.S. service
revenue.
Gaming revenues surged 81.1% year over year, driven by a 17.0%
year-over-year increase in Global Draw's installed base of
server-based gaming terminals and 5.8% year-over-year increase in
Global Draw's U.K. gross win per machine per day. Incremental
revenue from the Barcrest acquisition ($13.1 million) also boosted
growth during the quarter.
Attributable EBITDA rose to $86.7 million from $75.0 million in
the year-ago quarter. Joint venture EBITDA was $23.1 million in the
reported quarter compared with $21.2 million in the prior-year
period.
Operating income in the quarter was $25.1 million (including
stock-based compensation but excluding employee termination and
restructuring costs) compared with $14.4 million in the
year-earlier quarter. The increase in operating income was driven
by higher revenues.
Scientific Games exited the quarter with $100.4 million in cash
and cash equivalents compared with $104.4 million in the prior
quarter. Total debt remained flat year over year at $1.39 billion.
Free cash flow at the end of the quarter was $0.1 million compared
with $26.8 million in the year-ago quarter.
Recommendation
We believe that the company's diversified product offerings,
international development activities, recurring revenue business
model and strong growth from the Internet-based business will drive
the stock over the long term.
Further, the domestic lottery industry is undergoing a
transition phase, which involves increasing involvement of private
vendors in state lottery management, higher prize payouts and
introduction of tiered pricing for national jackpot games, to add
impetus to the the sagging U.S. lottery industry. We believe that
Scientific Games is well positioned to benefit from these
transitions going forward.
However, we believe that these measures will take some time
before it starts to boost the overall results. Hence, we prefer to
remain on the sidelines. We maintain our Neutral recommendation
over the long term (6-12 months). Currently, Scientific Games has a
Zacks #2 Rank, which implies a short-term Buy rating.
SCIENTIFIC GAME (SGMS): Free Stock Analysis
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