Lottery Operator GTech's Profit Disappoints

GTech Holdings Corp. (GTK), the world's largest lottery systems operator, on Tuesday said third-quarter profit was unchanged from a year earlier but its shares were off more than 9 percent as its fourth-quarter forecast fell short of Wall Street expectations.

GTech, which provides services and equipment to the lottery industry in 45 countries and 25 U.S. states, said it signed contract extensions with Colorado, Minnesota, Arizona and New Mexico in the third quarter.

Net income was $45.9 million, or 35 cents a share, compared with $45.9 million, or 35 cents, a year earlier. Analysts, on average, expected 35 cents a share, according to Reuters Estimates.

Third-quarter revenue was $315.6 million, up 23.8 percent from a year earlier. Analysts expected $305.3 million.

The West Greenwich, Rhode Island company said it expects to earn 31 cents to 33 cents a share in the fourth quarter — lower than the average analysts' estimate of 36 cents a share.

GTech shares were off 9.8 percent, or $2.78, at $25.59 on the New York Stock Exchange (search) — a fall triggered by the fourth-quarter forecast, several analysts said.

Shares of GTech have recovered in the past month, after the company was cleared of any criminal wrongdoing in a case that involved its offices in Brazil. The case alleged that a Brazilian official had allegedly asked GTech executives in Brazil to bribe Caixa Economica Federal (search) — which runs the Brazilian lottery — to extend a business contract.

But despite the clearance, Caixa, which accounted for about 10 percent of GTech's revenue, has said it will end the outsourcing of its lottery services to GTech or any external company. Still, GTech expects to continue providing some services to Caixa.

"Brazil cannot take over their lottery system without significant long-term help from GTech," J.P. Mark, analyst at Farmhouse Equity Research, said in an interview. "It's a pretty complex system that GTech spent years building and Brazil doesn't have the expertise to run it. They will have to employ GTech in some capacity to help them make that transition," he said.

"So the revenue from Brazil will likely decline, but not precipitously."

For full-year ending Feb. 26, 2005, GTech expects revenue growth of 19 percent and earnings of $1.46 a share to $1.48 a share.

For full-year 2006, GTech expects revenue growth of seven to nine percent and earnings of $1.53 to $1.58 a share.

Analysts expect earnings of $1.48 a share in full-year 2005 and $1.55 a share for full-year 2006.

GTech is considering expanding its services into the money transfer industry. "We do have a keen interest in international markets where we can leverage existing lottery infrastructure, Chief Executive Bruce Turner said on a conference call. "We will evaluate possible relationships in the money transfer space."

The company is also looking at expanding into the video lottery market. GTech two weeks ago acquired 50-percent of Atronic, a German video slot provider, and earlier this year acquired video lottery terminal maker Spielo.