IGT's attention to the basics pays off

The management mantra at International Game Technology long has been "free cash flow," and the company quickly makes the connection between cash flow and improvements in its manufacturing processes.

As the company last month reported its earnings for the quarter ended June 29, it noted that its gross profit margins were 42 percent compared with 39 percent a year earlier.

In the quarter it just completed, IGT posted gross profit of $94.3 million from product sales compared with $87.3 million in the same period a year earlier.

That's particularly important because IGT's shipments of slot machines it controls an estimated 70 percent of that business slipped to 31,300 units from 32,600 in the same quarter last year.

Despite the decline in shipments, IGT sold $222.4 million of its products in the just-completed quarter, down a hair from the $222.7 million in sales a year earlier.

The improved margins result largely from more efficient manufacturing.

Tony Ciorciari, IGT's senior vice president of operations, says the company targeted three areas its supply chain, its production tools, and its workforce to boost productivity.

The company worked closely with key suppliers to forecast its inventory needs several months ahead.

They created systems that allow suppliers to more quickly deliver components to IGT at the same time that IGT is able to fill its customers' orders more quickly.

"In that area, we're seeing some really significant improvement," says Ciorciari.

Greater efficiency in logistics also reduces the costs of carrying inventories at IGT.

New tools in the production area better equipment to move materials and computer-controlled routers, to name two further boosted productivity and increased profit margins.

IGT also saw the benefit of more training and greater experience in its workforce, particularly after it added large numbers of new employees in 2001.

IGT employs more than 2,000 at its manufacturing and office facilities in Reno's South Meadows.

"We've been maturing our workforce with unique and specific training," says Ciociari.

Although IGT is best known for its slot machine sales, its MegaJackpot gaming operations are the fastest growing piece of its business.

In the just completed quarter, IGT's gaming operations posted revenue of

$261.2 million compared with $97.4 million a year earlier.

IGT owns 28,300 slot machines and shares the take with casino operators.

In a conference call with investment analysts after the quarterly results were announced, IGFT Chief Executive Officer G.

Thomas Baker cautioned that the explosive growth in IGT's gaming operations appears to be cooling.

The company's earnings of $82.6 million 91 cents a share in its fiscal third quarter were ahead of the 89 cents expected by analysts polled by Thomson First Call.

In the same quarter a year ago, IGT earned $56.7 million, or 73 cents a share, on sales of $320 million.