Scientific Games Corp. (
reported dismal third quarter results. The company posted loss of
8 cents in the reported quarter in contrast to the Zacks
Consensus Estimate of a profit of 7 cents per share and earnings
of 6 cents in the year-ago quarter.
Total revenue increased 2.1% year over year to $227.5 million,
primarily driven by higher sales of lottery systems and terminals
and better-than-expected service revenues. Instant ticket revenue
declined 1.8% year over year to $124.4 million, while sales of
lottery systems and terminals soared 39.7% year over year to
$20.4 million. Service revenue increased 1.5% year over year to
Scientific Games' U.S. instant ticket retail sales increased
8.9% year over year in the quarter. U.S. lottery systems customer
retail sales climbed 8.5% year over year in the third quarter.
This strong growth fully offset a 17.6% decrease in China instant
ticket retail sales and a 6.3% decline in instant ticket retail
sales in Italy during the reported quarter.
Segment-wise, Printed Products Group revenues were down 1.8%
year over year to $127.4 million, primarily due to lower revenue
contribution from licensed properties business (down $6.2
million), lower International revenue from customers that
purchase tickets on a price per thousand unit basis (down $3.2
million) and unfavorable foreign exchange (down $1.4 million) in
the reported quarter.
Lottery Systems Group revenues increased 3.8% year over year
to $61.9 million, primarily on the back of higher sales of
software and hardware to international as well as U.S.
Gaming revenues surged 14.2% year over year to $38.3 million,
driven by incremental revenue from the Barcrest acquisition ($6.7
million) in the quarter.
Attributable earnings before interest, taxes, depreciation and
amortization (EBITDA) increased to $82.5 million from $81.7
million in the year-ago quarter. Joint venture EBITDA was $19.2
million in the reported quarter compared with $22.8 million in
the prior-year period.
Depreciation & Amortization (D&A) expense soared 40.2%
year over to $39.2 million in the quarter. However, this was
partially offset by lower selling, general & administrative
expense (SG&A), which decreased 6.9% year over year to $44.4
million in the reported quarter.
Higher expenses dragged down profit in the quarter. Operating
income plunged 38.2% year over year to $13.2 million compared
with $21.4 million in the year-earlier quarter.
Scientific Games reported a net loss of $7.2 million or 8
cents per share compared to net income of $5.5 million or 6 cents
per share in the year-ago quarter. Including one-time items and
charges, net loss was $27.1 million or 30 cents per share in the
Scientific Games exited the quarter with $136.0 million in
cash and cash equivalents compared with $112.4 million in the
prior quarter. Total debt was $1.47 billion compared with $1.37
billion at the end of the previous quarter.
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, 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 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 they start to boost the overall results. Further, stiff
competition from the likes of
International Game Technology (
and increasing investments for product development is expected to
hurt profitability in the near term.
Thus, we remain cautious on the stock and maintain our
Underperform recommendation on Scientific Games over the long
term (6-12 months). Currently, Scientific Games has a Zacks #3
Rank, which implies a short-term Hold rating.
INTL GAME TECH (IGT): Free Stock Analysis
SCIENTIFIC GAME (SGMS): Free Stock Analysis
To read this article on Zacks.com click here.