IGT Beats on Q2 Earnings, Revs - Analyst Blog

International Game Technology IGT reported second-quarter fiscal 2014 earnings (excluding one-time items) of 20 cents per share, which beat the Zacks Consensus Estimate by a penny.

Quarter Details

Revenues decreased 14.5% year over year to $512.8 million but surpassed the Zacks Consensus Estimate of $502.0 million. Product sales and Gaming Operations declined 27.4% and 9.4% year over year, respectively.

Interactive was the only segment that reported growth (up 19.6%) in the quarter. Social revenues increased 26.7% year over year that fully offset an 11.3% decline in IGTi revenues.

Average revenue per unit per day decreased 4.6% from the year-ago quarter to $47.00. Gaming Operations installed base of 53,400 units was down from 56,700 units in the year-ago quarter.  

IGT shipped 7,600 machines during the quarter compared with 14,300 units in the year-ago quarter. Average machine sale price was $14,700 versus $14,100 in the year-ago quarter.

Operating expenses as percentage of revenues increased 670 basis points (bps) from the year-ago quarter to 36.7%. The year-over-year increase was primarily attributed to higher selling, general & administrative (up 570 bps) and research & development expenses (up 170 bps). As a result, operating margin contracted 630 bps from the year-ago quarter to 21.0%.

Net income was $49.4 million or 20 cents per share compared with $95.1 million or 36 cents in the year-ago quarter.

IGT exited the second quarter with cash and investments (including restricted cash) of $432.3 million versus $580.6 million in the previous quarter. Total debt stood at $2.20 billion. During the quarter, IGT paid $27.0 million as dividend.

Guidance

For fiscal 2014, IGT revised its previous earnings guidance range of $1.28 to $1.38 per share to $1.00 to $1.10 per share. Currently, the Zacks Consensus Estimate is pegged at $1.03.

Recommendation

We believe that increasing investment in product development will increase operating costs. Moreover, intensifying competition from the likes of Bally Technologies BYI and Zynga ZNGA in its core as well as interactive markets remains a major headwind.

However, the cost savings from the restructuring program ($30.0 million in 2014 and $50.0 million annually) will boost profitability. The expanded partnership with Sony SNE is a significant positive that will boost the top line.

We believe that innovative product pipeline, growth from cloud-based products in international markets and strong growth from the DoubleDown business will boost IGT's overall growth in 2014.