Slot-Machine Maker IGT's Profit Falls Amid Casino Mergers

Slot machine maker International Game Technology (IGT) Thursday said quarterly profit fell 31 percent and results for the year will miss expectations, sparking a 10 percent sell-off in its stock.

IGT said existing casinos were finishing upgrades to new technology using printed tickets instead of cash and that expansion in the United States was in a lull. It added that IGT would not hit its 15 percent growth target for 2005 earnings per share.

Net income in the fiscal first quarter ended Dec. 31 fell to $122.4 million, or 33 cents a share, from $176.3 million, or 48 cents a share, in the year-earlier period.

Excluding one-time items, profit was 33 cents a share, which met the consensus Wall Street estimate as compiled by Reuters Estimates.

Shares of IGT slid $3.40 to $30.15 on the New York Stock Exchange (search), after falling as low as $29.93 earlier in the session.

Casinos are now replacing just 5 percent to 10 percent of their slot-machine capacity compared with 15 percent to 20 percent in recent years, as they finish upgrading to machines that use printed tickets, Jefferies & Co. analyst Aimee Marcel said.

In addition, casino mergers — Harrah's Entertainment Inc. (HET) is acquiring Caesars Entertainment Inc. (CZR) and MGM Mirage (MGG) is buying Mandalay Resort Group (MBG) — are delaying capital expenditures, she said.

"IGT's international sales were really strong ... domestic growth should return in 2006," Marcel said.

First-quarter revenue rose to $641.2 million from $608.1 million a year earlier, but product sales in North America fell 23 percent to $182.1 million.

The company sold 14,700 units domestically and 40,600 internationally during the quarter.

IGT Chief Executive TJ Matthews said results for the rest of the fiscal year will fall short of analysts' estimates on continued weakness in domestic shipments.

He said the company expects earnings at the lower end of its previous guidance of 30 cents to 35 cents a share in its fiscal second quarter and at the higher end of the same range in both its third and fourth fiscal quarters.

Analysts had expected a profit of 35 cents a share in the second quarter, 41 cents a share in the third quarter and 43 cents a share in the fourth quarter.

EPS growth in 2005 will not meet IGT's 15 percent target, "but we believe over the course of five years, we can still achieve that compounded growth rate," Matthews said during a conference call with investors and analysts.

The CEO said he expects U.S. gaming expansion to resume in the near term as new technology such as central server systems and video technology takes hold.

Matthews said the company has no immediate plans to buy back its stock.