Continued lottery products sales growth and a rise gambling machine shipments and installations helped International Game Technology post a third-quarter profit Wednesday that reversed a year-earlier loss and topped Wall Street forecasts.
But revenue missed forecasts, weighed down by the timing of jackpots and increased game machine installation-related depreciation.
IGT shares surged midday on the earnings-per-share beat, rising $2.74, or 12.8 percent, to hit $18.75 on the New York Stock Exchange by 11:30 a.m. PDT. The shares closed up $2.54, or 15.9 percent, at $18.55.
In a statement, the London-based slot giant said net income was $22.3 million, or 11 cents per share, for the three months ended Sept. 30, reversing a loss of $803.6 million, $3.95 a share, a year earlier.
Earnings adjusted for nonrecurring costs were 31 cents per share, topping the 28 cents-per-share forecast of seven analysts polled by Zacks Investment Research. IGT has topped Wall Street forecasts three times in the past six quarters, Zacks noted.
“Solid performance and important, long-term contracts drove very good third quarter and year-to-date results,” IGT CEO Marco Sala said in the earnings statement. “Global lottery same-store revenues for instants and draw games rose mid-single digits. The installed base of gaming machines was up, and unit shipments of gaming machines increased 10 percent.”
In a conference call announcing the earnings, Sala said demand for instant games, especially large-format tickets, continues to grow and drive his company’s North American revenue growth. Sala said a new printing press the company deployed this year drove a 20 percent increase in the number of tickets printed.
IGT positioned itself for further domestic lottery growth this month, as its company’s IGT Global Solutions Corp. extended by six years its contract to print instant tickets for the Texas Lottery Commission. The extension, for which financial terms weren’t disclosed, runs through Aug. 31, 2024. Sala added that the company has also extended instant-lottery-ticket printing agreements in New York and Idaho.
Looking abroad, Sala said Italy continues to be a strong growth market for the company; revenue there rose 4 percent and operating revenue rose 17 percent in the quarter.
During the conference call IGT outlined several issues surrounding its Italian lottery business to ease certain fears.
“IGT should benefit from healthy lottery and gaming trends while it is addressing investor concerns around Italy,” SunTrust gaming analyst Barry Jonas said.
Revenue fell 5 percent to $1.16 billion from $1.22 billion a year earlier. Zacks-polled analysts had expected revenue of $1.17 billion.
Adjusted earnings before interest, taxes, depreciation and amortization, a measure of cash flow, was $443 million up 3.5 percent from $428 million a year earlier, boosted by global lottery performance.
“We view the strong results in the quarter as indicative of the stability of the lottery businesses and continued progress in the turnaround of the U.S. slot business,” said Jefferies gaming analyst David Katz.
Signals augured well for IGT’s earnings before the call. Deutsche Bank gaming analyst Carlo Santarelli foresaw growth for the company’s gaming machine installations, saying in a research note that the products had been positively received.
“Operators noted … specifically the product coming from the legacy GTech studios, has played very well, which has helped IGT drive increasing ship share in casino-operator-purchased video product in 2018,” said Santarelli, who rates IGT “buy.”
Poising itself for online gambling market growth, IGT this past week signed a five-year deal to have its PlayDigital division provide digital gaming products and services for Penn National Gaming’s Penn Interactive Ventures.
The services and products would serve Pennsylvania’s newly regulated online gaming market. Financial terms of the deal weren’t disclosed.
Despite Sala’s optimism, Motley Fool gambling stock watcher Travis Holum said he remained wary of IGT, noting the gambling company’s debt was $7.57 billion at the end of the quarter.
“IGT has been extremely volatile because investors don’t know if the company is potentially a high-growth stock or an overleveraged disaster waiting to happen,” he wrote. “There wasn’t much leeway operationally if operations start to deteriorate because of a recession or slowdown in gaming.
“High debt and declining revenue are enough to keep me out of the stock today,” Holum added. “And investors should be careful about betting big on such a highly leveraged company that doesn’t have growth to go along with it.”
Follow Matthew Crowley on Twitter: @copyjockey
