IGT profits grow despite revenue dip

RENO, Nevada -- A favorable tax benefit adjustment and slot machine sales into international markets drove gambling equipment giant International Game Technology to a rise in fiscal third-quarter profits despite a decline in company revenues.

Reno-based IGT said Tuesday its net income for the quarter that ended June 30 was $94.6 million, or 32 cents per share. In the same quarter a year ago, IGT reported net income of $62.2 million, or 21 cents a share. Without one-time charges, IGT would have earned 21 cents a share during the quarter.

Analysts polled by FactSet Research expected IGT to earn 21 cents a share.

"(Earnings per share) came in a little better than we were looking for, primarily because of operating expenses," BMO Capital Markets analyst Edward Williams said.

Revenues fell 5.3 percent in the quarter to $489.7 million, compared with $517.3 million a year ago. IGT said 56 percent of the quarterly revenues came from slot machines where the company shares in profits with casino operators.

As for direct sales of slot machines, IGT's revenues decreased 8 percent from a year ago.

In North America, IGT's slot machine sales revenues decreased 16 percent in the quarter, mainly because there were fewer openings of casinos in the three-month period compared to a year ago.

Internationally, however, sales revenues increased 8 percent for the quarter, primarily due to favorable foreign currency exchange. IGT said its sales were boosted by the April opening of the $5.7 billion Marina Bay Sands in Singapore, in addition to improved sales in Mexico.

IGT sold 4,500 slot machines domestically during the quarter, compared with 6,700 games a year ago. Internationally, the company sold 5,400 machines, compared with 5,500 games last year. However, the sales margins for all slot machines were up three percentage points.

Analysts expected sales figures to be down for the gaming equipment manufacturing sector. The poor economy had kept casino operators from spending money to replace older games.

On a conference call with analysts and investors, IGT Chief Executive Officer Patti Hart said she wasn't surprised by the slow North American slot machine market.

"Our customers continue to spend capital at a conservative pace in an uncertain economy," Hart said. "(Casino operators) seem to be waiting for the malaise in the travel and leisure industry to lift."

She said the slot machine manufacturer benefited from last year's corporate restructuring program.

"Despite challenges in the broader marketplace, we continue to manage our business to increasing levels of efficiencies," Hart said. "Our efforts have resulted in the generation of significant cash flow for reinvestment into the business in areas that create innovative and customer centric products and services."

IGT Chief Operating Officer Eric Tom said several of the company's newest slot machines have helped boost sales figures. Since it was introduced earlier this year, some 1,300 slot machines themed after the HBO television series "Sex and the City" have been placed in casinos.

Wall Street still has somewhat low expectations for the manufacturing sector, mainly due to a lack of a slot machine replacement market within the casino industry.

"Investor sentiment is the poorest in gaming equipment, something that quickly can change in the near term if low expectations are met and-or exceeded," JP Morgan gaming analyst Joe Greff said.

Union Gaming Group Principal Bill Lerner said IGT has been focusing on shoring up key segments of its product sales and game operations businesses in preparation for a replacement market returning.