IGT financial woes a drag on entire gaming equipment sector

LAS VEGAS -- Slot machine giant IGT - International Game Technology took a battering from investors Wednesday and analysts worried sour financial predictions announced 24 hours earlier might taint rival companies in the gaming equipment sector.

IGT on Tuesday said it is reducing its worldwide workforce by 7 percent and trimmed earnings prospects, blaming a decline in gaming revenue in U.S. regional gaming markets and a challenging business environment in foreign destinations.

Shares of IGT closed at $13.62 Wednesday on the New York Stock Exchange, down $1.23, or 8.28 percent. At one point Wednesday the company’s stock price hit a 52-week low of $13.39.

Other gaming equipment providers felt a spillover effect.

Bally Technologies, Inc. was down $1.42, or 2.20 percent, on the New York Stock Exchange to close at $63.62; Multimedia Games, Inc. was down $1.67, or 5.99 percent, to close at $16.20 on Nasdaq Global Select, and Scientific Games Corporation, which owns slot maker WMS Industries Incorporated, fell 52 cents, or 3.57 percent, to close at $14.04 on Nasdaq.

Steven Wieczynski, Stifel Nicolaus Capital Markets gaming analyst, said in a research note that investors would punish other equipment providers in the near term, most notably Bally.

“We believe (IGT) will stoke broader industry concerns related to the emergence of smaller industry competitors and their related impact on the level of absolute demand and pricing able to be achieved by the industry’s larger players,” he said.

J.P. Morgan gaming analyst Joe Greff said many issues cited by IGT appear to be company specific.

“It appears that IGT is slowly losing share in product sales and continues to face new competitive pressures in its game operations segment, on top of regional gaming revenue weakness,” Greff said.

IGT said Tuesday cost-cutting measures will translate into savings of $30 million in the current fiscal year and $50 million annually in coming years. The company also told the investment community it was lowering its fiscal 2014 guidance for adjusted earnings per share from a range of $1.28 to $1.38 to a range of $1 to $1.10.

Credit Suisse gaming analyst Joel Simkins said competitors “are likely licking their chops” at the opportunity to steal away market and even some IGT talent.

“We are pleased to see IGT take steps to realign its business, however, (we) continue to see a lack of catalysts given challenging industry conditions and the length of time it may take to adapt to counter nimble competitors,” he said.

But if IGT can fix its financial issues, the company could put pressure on Bally, its main rival in the slot machine market, Simkins said

Janney Montgomery Scott gaming analyst Brian McGill said said IGT management has “overstated” the gaming revenue impact on operations.

“We believe this is only part of the story,” McGill said. “IGT also continues to lose share to other companies. Even if gross gaming revenue in regional markets does improve, we do not think it will have a dramatic positive impact on revenues.”

McGill added that “it is difficult to find a positive catalyst that could move shares higher.”

On a conference call with analysts Wednesday, IGT executives were asked if they would consider selling all or part of its social gaming business, DoubleDown Casino, as a way to unlock value. It bought DoubleDown for $500 million in 2012.

CFO John Vandermore said the company is always looking for ways to unlock value.