Since masks became part of everyday wardrobes and social meetings required 6-foot distances, market watchers (and others) have speculated when 2019-style normalcy might return.
After a surging first quarter that crushed, Wall Street expectations, International Game Technology CEO Marco Sala has a prediction — this year.
The London-based gaming equipment provider said Tuesday its lottery business reached record levels with same-store sales up over 30%. At the same time, slot machine revenue from casinos nearly recovered to prior-year levels, thanks partly to a 40% increase in machine units sold in the United States and Canada. Also, revenue nearly doubled from a year earlier in digital and betting activities.
“With such strong Q1 results and an expectation of progressive recovery for land-based gaming as we move through the year, we believe we can return to pre-pandemic revenue, profit, and leverage levels this year,” Sala said in a conference call with analysts and journalists.
Several gaming analysts tempered Sala’s enthusiasm.
Union Gaming Group analyst John DeCree said unlike the lottery business, which has rallied to record highs, the gaming will take longer to recover
“We expect a fuller recovery in fiscal year 2022 when capacity restrictions are substantially alleviated, and casino operators have had a chance to deleverage balance sheets,” DeCree told investors in a Wednesday morning research note. “Slot sales should pick up in the second half of this year, and as VLT jurisdictions in large markets like New York and Rhode Island loosen restrictions, we would expect a sharper recovery in gross gaming yields.”
IGT also closed the sale of Italian-facing business-to-consumer gaming businesses to Apollo Global Management subsidiary Gamenet Group, for $1.16 billion. The deal includes the sale of all share capital of the Lottomatica Scommesse and Lottomatica Videolot Rete S.p.A. businesses.
Sala said IGT will use the proceeds to cut debt.
Macquarie Securities gaming analyst Chad Beynon said the sale removed IGT’s “most overregulated, capital-intensive and criticized business.”
During the quarter that ended March 31, IGT’s revenue increased 8% to $1.02 billion from $814 million and topped the Bloomberg analyst consensus of $876 million. IGT said its net income was $92 million, or 38 cents per share, reversing a net loss of $248 million, or $1.28 per share, a year earlier.
Adjusted earnings before interest, taxes, depreciation, and amortization, a cash flow measure that excludes one-time costs, were $450 million, up 46% from $261 million a year earlier and above the Bloomberg polled analyst average consensus of $309.2 million.
Sala said content has helped drive lottery success, making it a common “new normal” activity. Revenue in the segment rose 48% from a year earlier to $749 million from $505 million.
“We must acknowledge that some of the recent strength comes from the relative lack of other entertainment alternatives,” he said. “In the U.S., higher disposable income, which includes the benefit of government stimulus, is another factor. But lottery has always maintained a steady growth profile. The games have high entertainment value with broad player appeal. A consistent stream of new games offers fresh opportunities for player engagement.”
Gaming is also recovering quickly, Sala said, as U.S. casinos have reopened business and the pace of vaccination boosts players’ and operators’ confidence.
“Core players have returned and new players, mostly younger, are entering the market as other entertainment options are limited,” Sala said.
Truist Securities gaming analyst Barry Jonas said a “quicker than expected lottery-based recovery” could lead to IGT paying down debt.
“We think this should all imply meaningful upside to the shares,” he said
IGT surged 16.73 percent Tuesday on the New York Stock Exchange. IGT’s share price has doubled over the past six months.
The company’s shares, however, declined 1.47% or 30 cents per share on Wednesday to close at $20.07.
Jefferies analyst David Katz told Bloomberg News IGT’s “outperformance was more prominent than that of the industry overall, particularly related to free cash flow.” Katz added that the strength of IGT’s lottery business is noteworthy, given its stability within the consumer economy.
Follow Matthew Crowley on Twitter @copyjockey
