Shares of gaming equipment giant International Game Technology plunged during regular trading Thursday after the company posted a net loss and lower revenue for its fourth quarter, missing Wall Street forecasts.
Company officials said noncash impairment charges contributed to the fourth-quarter results but added that a strong lottery performance would position IGT for future growth.
In a statement, London-based IGT, which produces and operates gaming and lottery machines in more than 100 countries, said its net loss was $102 million, or 50 cents per share, for the three months ended Dec. 31, compared with net income of $79.8 million, or 39 cents per share, a year earlier.
Adjusted net income, which filters out nonrecurring expenses, was $48 million, or 24 cents per share, missing the 33-cents-per-share forecast of Wall Street analysts.
IGT shares fell $2.72, or 15.93 percent, to close at $14.35 in regular trading on the New York Stock Exchange. Almost 18 million shares of IGT were traded Thursday, roughly six times the average daily volume.
IGT shares have fallen 51 percent in the past 12 months.
In research note to investors, Credit Suisse gaming analyst Cameron McKnight suggested Thursday’s sell-off was overblown. He said the results were “a little soft” but “no worse than feared.”
Deutsche Bank gaming analyst Carlo Santarelli has “Buy” rating on IGT’s stock with a target price of $20 per share.
In the note, McKnight said that longer-term, IGT is “capable of delivering $1.85/share in dividends — which implies a 12 percent future, potential dividend yield at $15.50/share.”
“Given what we would call largely favorable underlying trends and a stock that is clearly cheaper today, we are hesitant to make any dramatic changes to our view,” Santarelli told investors.
Fourth-quarter revenue was $1.27 billion, in line with Wall Street estimates, but down 5.9 percent from $1.35 billion a year earlier. A 33 percent drop in gaming service revenue, from $34 million from $55 million factored in the overall revenue drop.
During its conference call, the company said it also had declines in international gaming machine shipments in the fourth quarter and full year. South American market dynamics, particularly in Peru and Argentina and lower replacement demand in certain European markets, factored in the drop, the company said, while adding that it made progress in the Australian and Eastern European markets.
IGT Chief Financial Officer Alberto Fornaro said the company’s international market outlook remains the same.
“Our expectation for (international market) growth remains about the same as before,” he said. “But we are starting from a lower base with the 2018 results and is coupled with other factors, including a higher weighted average cost of capital.”
Furthermore, Fornaro said, IGT managed its debt, made large upfront payments for a key lottery license in Italy and invested in long-term North America lottery contracts.
The Motley Fool’s Travis Hoium surmised that the falling revenue combined with the IGT’s $7.8 billion in debt at quarter’s end may have sparked Thursday’s sell-off.
“Falling short of earnings estimates isn’t always the end of the world, but it’s especially troubling for companies with a lot of leverage,” Hoium wrote. “In the gaming industry, there doesn’t seem to be a lot of growth in general right now, with very few large casino projects and no real need for most operators to upgrade equipment. Sports betting was the one ray of hope for growth, but IGT hasn’t seen significant growth in the segment lately and that’s diminished hopes for growth.”
IGT CEO Marco Sala said the fourth-quarter results were in line with the outlook the company issued in October, and that the company reached the top end of its full-year guidance for earnings before interest, taxes, depreciation and amortization.
“We delivered mid-single-digit EBITDA growth on stable revenue in 2018 at constant currency and scope,” he said. “Our profit also benefited from overall operating expenses discipline, particularly the optimization of (research and development).”
Furthermore, Sala said, IGT’s core lottery and gaming business are poised to continue growing.
“Over the last four years, we have established a solid foundation to build from securing large long-term lottery concepts, stabilizing the North American gaming business and investing in new growth opportunities like sports betting,” he said. “All of that should result in a meaningful improvement in the free cash flow starting in 2019.”
For the full year ended Dec. 31, IGT had a net loss of $24.3 million, or 10 cents per share. Twelve-month revenue fell 2 percent to $4.83 billion.
Follow Matthew Crowley on Twitter @copyjockey
