Scientific Games reported preliminary earnings ahead of expectations for its 2016 fourth quarter on Wednesday, offering an indication that the enterprise is moving in the right direction under Kevin Sheehan, its new chief executive.
The gaming equipment giant stated that it expects to report a net loss of $105-$115 million, consolidated revenue in the range of $748-$755 million and attributable EBITDA at $290-$295 million for the quarter. These totals include a $69 million goodwill impairment write-off pertaining to its international lottery systems reporting.
Both the revenue and AEBITDA figures were up year-over-year and checked in above analyst estimates of $737-$740 million and $280-$283 million, respectively.
“Our preliminary results for the fourth quarter 2016 reflect ongoing improvements in our gaming, lottery and interactive operations, as well as the initial benefits from our recently implemented business improvement initiative that is expected to reduce our annualized cost structure by $75 million,” said Sheehan, who assumed the president and CEO role last summer.
Scientific Games will report its full fourth quarter results on March 2, 2017.
The better-than-expected results, in tandem with the sweeping cost reduction plan, was met with approval by several analysts.
“4Q results demonstrated SGMS’s ability to continue driving growth, even in a cost cutting environment,” wrote Chad Beynon of Macquarie Securities in a note. “Results were supported by the company’s initiative (announced November) to reduce its annualized cost structure by $75m.”
“While we don’t have enough detail to break down the individual businesses and assess where the actual upside is coming from, we have to admit the overall AEBITDA results are a good sign Mr. Sheehan has SGMS moving in the right direction for now,” wrote Steven M. Wieczynski of Stifel Nicolaus Capital Markets.
Scientific Games also announced a private offering of $1 billion in new bonds. These funds will be used to retire notes expiring in 2018 and make pre-payments on its loans – thus advancing Sheehan’s stated goal of paying down the company’s roughly $8 billion in outstanding debt.
“With our customer and player-focused strategies, we believe the Company is well positioned to build on this success in 2017. We plan to generate improved results in 2017, while remaining focused on deleveraging,” said Sheehan.
The announcement was construed as a meaningful development in the company’s quest to improve its leverage profile.
“With its announcements (Wednesday), we believe SGMS is beginning to turn the corner with new CEO Kevin Sheehan at the helm,” said John DeCree, an analyst with Union Gaming, who reckoned that the refinancing maneuver would serve as a boost to the company’s cost cutting strategy.
“We estimate a 1 (percentage point) reduction in the interest rate on the remaining loans, coupled with the redemption of the 2018 notes and including the add-on 7% notes, would net $30m of savings on an annualized basis,” he said.
