IGT sees profit dip in first quarter

LAS VEGAS, Nevada -- Slot machine giant International Game Technology reported a 6 percent drop in its net income during the first quarter.

Gaming analysts, however, had more of an interest Thursday in where the gambling equipment market is headed and where IGT fits into the long term picture.

Reno-based IGT said its net income was $113.7 million, or 36 cents a share in the quarter that ended Dec. 31, compared with net income of $121 million, or 35 cents a share, a year earlier.

Analysts polled by Thomson Financial had expected the company to earn 36 cents a share in the quarter.

The company's earning per share bump was the result of an aggressive stock repurchase program IGT has undergone in the past year. The company's fully diluted shares outstanding have been reduced by 26 million shares, from 344 million to 318 million.

During the quarter, IGT bought back 3.5 million shares for a total cost of $149.2 million. IGT said it has 29.8 million shares remaining under its authorized repurchase plan.

Revenues rose 0.5 percent to $645.8 million from $642.3 million.

Product sales slipped in the quarter from $317.4 million to $313.5 million and product shipments fell 25 percent. Gross profit margin climbed slightly due to a growth in network system sales.

"Product sales margins were better than expected, driven primarily by nonmachine revenues in the quarter," Bear Stearns gaming analyst Joe Greff said in a note to investors. "Both domestic and international unit sales were down year over year, reflective of the tough domestic replacement cycle and lower shipments into Japan and the United Kingdom."

Nevertheless, Greff told investors gaming equipment companies might be a good investment in 2008.

"Our positive view is unchanged," Greff said. "We think IGT will continue to grow its gaming operations profits nicely, steadily shrink its share count, execute on operating margin efficiencies, grow internationally, and participate in domestic expansion opportunities."

Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski thought the first quarter might be IGT's weakest in 2008. He said the company's outlook on the makeup of the slot machine floor and where it stands on the potential of server-based gaming reaching casinos this year could influence investors.

"These issues will be critical in determining whether shares advance or decline," Wieczynski said. "There are still many investors waiting on the sidelines due to doubt surrounding the server-based gaming story."

Shares of IGT closed at $39.41 Thursday on the New York Stock Exchange, down 31 cents, or 0.78 percent. The company announced earnings before the start of trading.