IGT mixed end-quarter results stir caution

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Gaming machine manufacturer International Gaming Technology (IGT) saw its net income in the fourth quarter of last year hit 217.4 per cent of the value of the same quarter in 2015, according to the group’s filing with the United States Securities and Exchange Commission (SEC).
Despite the group’s net income hitting US$233.3 million (MOPMOP1.87 billion/HK$1.81 billion) during the final quarter of the year, its whole year earnings only reached US$211.34 million, still a turnaround from the US$75.57 million loss seen in 2015.
Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) for the same period totalled US$1.75 billion, mainly attributable to strong market performance in North America, according to the company.
The U.S.-listed company is engaged in the design, development and manufacture of gaming products and systems worldwide.
Revenue for the group during the final quarter of last year amounted to US$1.32 billion, a 3.2 per cent drop compared to US$1.36 billion the previous year
The group shipped nearly a third of the total machine units it moved throughout the year in the fourth quarter alone, at 10,320 units, out of 33,147 units total in 2017. This Q4 number reflected a 10.7 per cent drop in units shipped compared to the same period a year earlier, and a 5.7 per cent slow down in units for the whole year, according to the filing.
Adjusted earnings before interest, taxation, depreciation and amortization (EBITDA) reached US$422 million in the fourth quarter, a 6 per cent year-on-year drop, and also 5 per cent below consensus by brokerage Wells Fargo, despite, according to the group, reflecting ‘broad-based lottery growth and higher gaming product sales,’ according to IGT’s filing.
According to Cameron Knight, a senior analyst at Wells Fargo Securities, IGT’s consensus miss was ‘related to International, Interactive and Italy operations’. According to IGT’s filing, its international revenue was US$220 million, a 17 per cent year-on-year drop in the fourth quarter, whereas its Italy segment was ‘in line with the prior year’ at US$449 million in revenue for the quarter.
North American gaming revenues were down in the interactive segment, representing a decrease of 26 per cent to US$62 million. However, ‘the installed base does seem to be stabilizing with strength from new titles like Wheel of Fortune 3D,’ notes the Wells Fargo analyst.
Annual revenue for the year ended December 2016 totalled US$5.15 billion, a 10 per cent hike year-on-year from the US$4.68 billion reported for the whole year of 2015.
The company’s decline in international revenues was led by lower product sales when compared to the previous year, with replacements down 21 per cent, notes McKnight.

America in the lead
The company’s results in the North America market also suffered from fewer games sold, with a 17.9 per cent year-on-year contraction in sales during the quarter, totalling 5,419 games sold. Meanwhile, analysts at Telsey Advisory Group note that IGT’s social casino business came in lower than its forecast of US$63.5 million, hitting US$61 million – a drop from the US$83.6 million seen the previous year.
‘Our view is that the story remains intact with gaming in North America positioned for recovery,’ note the analysts at Telsey, encouraged by a 6 per cent year-on-year uptick in lottery revenue from the segment, to US$284 million in the fourth quarter.
Overall the group ‘expects to achieve adjusted EBITDA of US$1.68 – US$1.76 billion for the full year 2017 period,’ notes the group, as ‘operational growth compensates for the Powerball and late numbers benefits recorded in 2016, in addition to new Lotto concession impacts in 2017,’ according to the filing.
IGT holding company headquarters are in the United Kingdom, with operating headquarters in Rome (Italy), Las Vegas (Nevada), and Providence (Rhode Island). Its local subsidiary, IGT Asia Macau Lta., provides gaming systems technology to a variety of local operators.