Scientific Games Corp.
) posted a loss of 14 cents per share in contrast to the Zacks
Consensus Estimate of a profit of 2 cents in second quarter of
2013. The company had reported a loss of 12 cents in the year-ago
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Revenues increased 4.0% year over year and 7.0% sequentially to
$235.0 million, which beat the Zacks Consensus Estimate of $231.0
million. The increase in revenues can be attributed to
improvement in the core lottery business, which posted decent
revenue growth based on accelerating instant ticket and lottery
system retail sales.
Instant ticket revenues increased 5.8% year over year and 3.0%
sequentially to $126.5 million. The instant ticket and draw game
retail sales of the company's U.S. customers increased 4.9% and
10.8%, respectively, during the quarter. Instant ticket sales
continued to be propelled by strong performance in larger states,
while draw sales benefited from a record Powerball jackpot of
$591 million in the quarter.
During the quarter, Scientific Games also secured a number of
contracts from the likes of New Jersey Lottery, Hellenic Republic
Asset Development Fund, Hungarian State Lottery, and largest
electronic lottery provider in the Dominican Republic.
Lottery authorities of the state of Ohio, Oregon and West Virgina
extended their contracts during the quarter. Moreover, Scientific
Games won contracts in Israel, Australia, Switzerland and Norway.
Instant ticket retail sales in Italy (in terms of €) decreased
2.4% from the year-ago quarter, while instant ticket retail sales
in China (in terms of RMB) declined 7.6% during the same period.
Segment-wise, Printed Products Group revenues increased 6.0% year
over year and 3.0% from the previous quarter to $353.3 million.
The results were primarily driven by higher ticket sales and
incremental revenues from Provoloto acquisition.
Lottery Systems Group revenues increased 6.6% year over year and
18.4% quarter over quarter to $68.9 million, reflecting higher
sales to international customers. Service revenues increased $1.1
million year over year as a result of higher U.S. retail sales
from Powerball jackpot.
Gaming revenues declined 6.8% year over year but increased 2.7%
from the previous quarter to $36.1 million. The year-over-year
decline was primarily due to lower revenues from customers
outside the U.K. coupled with negative impact of foreign exchange
and a loss from the William Hill contract in 2012.
Attributable earnings before interest, taxes, depreciation and
amortization (EBITDA) margin declined 47 basis points (bps) from
the year-ago quarter to 36.5%. Sequentially, EBITDA margin
increased 68 bps compared to the previous quarter.
Depreciation & amortization (D&A) expense increased 17.0%
year over year and 31.4% sequentially to $43.1 million in the
quarter. Selling, general & administrative expense (SG&A)
decreased 0.7% year over year and 8.9% sequentially to $46.2
Operating margin was 5.3% compared with 5.0% in the year-ago
quarter and 5.1% in the previous quarter, due to lower SG&A
Scientific Games reported loss of $12.4 million or 14 cents per
share, compared with net loss of $10.9 million or 12 cents per
share in the year-ago quarter and net loss of $12.3 million or 15
cents per share in the previous quarter.
Balance Sheet & Cash Flow
Scientific Games exited the quarter with $78.1 million in cash
and cash equivalents compared with $90.0 million in the prior
quarter. Total debt declined to $1.46 billion from $1.47 billion
at the end of the second quarter.
We believe that the company's diversified product offerings,
international development activities, recurring revenue business
model, strong growth of the Internet-based business and the
pending WMS Industries (WMS) acquisition 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 contributing to the overall results. Further,
stiff competition from the likes of
International Game Technology
Bally Technologies Inc.
) is expected to hurt profitability, going forward.
Moreover, increasing investments for product development is
expected to hurt profitability in the near term. Additionally, a
significant increase in regulatory, professional fees and other
expenses related to the
WMS Industries (
acquisition may take a toll on the company's margins in the near
has a Zacks Rank #3 (Hold).