Is IGT Facing a Slowdown?

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International Game Technology (NYS: IGT) , the global gaming company, recently released its fourth-quarter numbers and a rather flat set of annual numbers. Let's take a closer, Foolish look to see how IGT is doing.

The numbers
The Reno, Nev.-based company saw its revenue get a boost by 14% to $540 million. Earnings came it at $60 million, more than 2.5 times the previous quarter's numbers. This was mainly on the back of strong machine sales in North America and healthy international gaming operations.

For context, rival Bally Technologies (NYS: BYI) also saw its latest fiscal first-quarter revenue increase by 14% to $195 million, but profits got sliced by 7% to $20.4 million. However, Bally raised its full fiscal guidance as the company won many new contracts.

Jumping back to IGT, gaming operations saw an 8% increase in revenue to $283 million mainly due to an increase in international installations and revenue from the company's recent acquisition of Entraction Holding AB. Product sales saw quarterly revenue up by 20% to $257 million mainly due to a 38% jump in unit sales and higher average selling prices internationally due to favorable foreign exchanges.

Not a game-changing year
For the fiscal year, IGT saw consolidated gross profit grow by 4.5% to $1.14 billion mainly due to improved machine sales in North America. Also, operating income for the fiscal year went up 19% to $505 million mainly due to higher gross margins and lower expenditure on impairment and restructuring activities.

Patent pangs
Recently, IGT won a lawsuit against Bally Technologies for infringing on patents that claim certain methods of rewarding bonuses at gaming machines. Two of Bally's products, ACSC Power Winners and Power Rewards, were said to infringe on IGT's patents.

Back in October last year, industry peer WMSIndustries (NYS: WMS) had also slapped a lawsuit against Bally Technologies for infringing on patents with its games. However, the two reached an agreement under which Bally would get licenses for WMS' technologies.

Unwilling to roll the dice
The Global Gaming Expo recently saw International Gaming Technologies, WMS Industries, and Bally Technologies introduce many new gaming titles, themes, and machines in order to woo as many casinos and gaming operators as possible. But the current economic slowdown is showing its influence with sluggish replacement cycles coupled with lower growth of new casinos.

So the fact remains that despite these companies rolling out new innovations, demand for gaming machines may remain muted. The sluggish growth in consumer discretionary spending, coupled with changing revenue streams of casinos and the huge debt these gaming operators carry -- especially MGM (NYS: MGM) -- might provide the right setting for lackluster growth.

The Foolish bottom line
While Bally may be an exception with a few orders under its belt, the industry as a whole may continue to witness subdued levels of growth on account of lower consumer discretionary spending. Even IGT CEO Patti Hart said that given the market volatility, a tough economic outlook is expected for the next 12 months. For this reason, I would be reluctant to put my chips on the table for this sector as a whole. What do you Fools think? Let me know in the comments box below. You can also stay up to speed with IGT's performance by adding this stock to your very own watchlist. It's free, and it keeps you up to date on the latest news and analysis for your preferred companies.

At the time this article was published Keki Fatakia does not hold shares in any of the companies mentioned in this article. The Motley Fool owns shares of Bally Technologies and International Game Technology. The Fool has opened a short position in Bally Technologies. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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