IGT follows gaming industry trend with 17.9% drop in revenue

For slot machine manufacturing giant IGT, Monday’s quarterly earnings report was a familiar story.

A great start in January and February. A sudden downward spiral when coronavirus fears began closing casinos and lottery operations worldwide. A companywide pivot to preserve cash. And a hopeful outlook if the rebound plays out the way executives hope.

“After a solid start in the first two months of the year, we quickly shifted our focus to the global COVID-19 health crisis in March,” said Marco Sala, CEO of IGT. “The safety and well-being of our people, customers and communities have been our highest priority since day one.

“We implemented robust business continuity plans and maintain service levels at our normal, high standards,” Sala said. “I am grateful for the passion and perseverance the entire IGT team has demonstrated during these unprecedented times, and I am confident IGT is well positioned to emerge from the crisis a stronger, even more competitive organization.”

But first, the pain.

IGT reported a net loss of $197.3 million, $1.21 a share, on revenue of $940.2 million, a 17.9 percent decline, for the first quarter that ended March 31.

The good news for IGT is that it is geographically and industrially diverse with sales in North America, Europe and Asia. In addition to producing slot machines — one of the biggest parts of its core Nevada business — it manages lotteries and has introduced a new sports wagering system adopted by MGM Resorts International.

But the bad news is that its biggest strengths are in North America and Italy, two spots hit hard by the pandemic. In Italy, where IGT manages a national lottery, Sala said the country “has had some of the most restrictive regulations in the industry.”

On a conference call with investors, Sala said 97 percent of IGT’s workforce is working from home and most workers have been furloughed. To save money, the company has instituted a hiring freeze, eliminated capital expenses, reduced travel and renegotiated terms with creditors.

Sala also introduced the company’s newest officer, Executive Vice President Chief Financial Officer Max Chiara, who joined the company in early April and replaces nine-year CFO Alberto Fernaro.

IGT impressed investors, outperforming analyst expectations for quarterly earnings and revenue.

But Carlo Santarelli, a New York-based gaming industry analyst with Deutsche Bank, characterized IGT as a puzzle because its stock price has underperformed.

“Overall, while IGT shares are up nicely, there is little to no differentiation in gains, with IGT actually underperforming gaming segment comps, for whom lottery is a smaller percentage of the mix,” Santarelli said in a note to investors. “Making sense of daily moves in gaming has been a fool’s game, of late, though we see today’s relative action as unfounded.

“Given this relative underperformance, our favorable estimate revisions, and a more optimistic lottery view than our prior stance, we have raised our price target to $11 from $9 and we are reaffirming our ‘Buy’ rating,” he said. “We continue to view IGT as a deep value name, which admittedly has been a value trap of late, though we believe the ability of the lottery to show resilience in the near term will serve as a catalyst, as will the emergence from the bottom in Italy, which we expect to be a second half of 2020 event.”

IGT shares, traded on the New York Stock Exchange, closed up 53 cents, 6.5 percent, on Monday to $7.46 a share on higher-than-average volume. After hours, shares rose another 9 cents, 1.2 percent to end at $7.55 a share.

Contact Richard N. Velotta at rvelotta@reviewjournal.com or 702-477-3893. Follow @RickVelotta on Twitter.