IGT: Pace of expansion of gaming difficult to predict

TJ Matthews, the chief executive officer of International Game Technology, remains convinced that the market for slot machines will perk up dramatically.

When? That's the question that frustrates Matthews and his team at the Reno-based manufacturer of slot machines, and the company's executives said last week they don't have a clear vision of what the demand will be for their products during the next few quarters.

There's enough replacement demand from casinos and enough business on the gaming networks that IGT owns that Matthews predicted earnings won't dip below 30 cents a share.

That's a fair amount of scratch something in the area of $116 million in income every 90 days but the big pop to IGT's earnings will come with the addition of new gaming markets.

The company figured those markets Pennsylvania,Great Britain, and Florida would be opening up this year and adding to its sales.None of the new business has materialized, nor has the expansion of California gaming that was expected to provide yet another boost to IGT's sales.

"It's caused us to come to the conclusion that gaming expansion, while alive and well, is going to take longer than anticipated,"Matthews told analysts last week.

As new markets open, the IGT chief said he expects the Reno company will continue to win dominant shares of the slot floor.

"There are potentially more upside drivers than downside drivers,"he said.

The effects of slow-developing new markets were apparent when the company reported its earnings for the quarter ended March 31.Net was about $94 million for the quarter, down 20 percent from year-earlier figures.

Shipments of slots into North American markets during the quarter were less than half of year-earlier figures 13,300 units compared with 27,200 in early 2004 and foreign markets didn't pick up the slack.

Partly,Matthews said, the decline reflects the end of the wave of replacement purchases by casino operators eager to get their hands on cashless slots in the past couple of years.

He acknowledged, however, that IGT was slow to recognize the demand for low-denomination slot machines and lost market share in those video-reel machines.

Now, he said,"We want to overwhelm that space with the best ideas." IGT executives said they continue to devote about a third of the company's free cash flow to payment of dividends, about a third to capital expenditures and about a third to repurchase company shares.