Friday, May 7, 2010 | 10:10 a.m.
Debt rating company Standard & Poor's has lifted its outlook for International Game Technology on the belief that as the economy improves and gambling expands in some jurisdictions, casinos will start buying more slot machines and related gaming equipment.
S&P on Wednesday lifted its outlook on IGT to stable from negative. The Reno-based slot maker last month reported revenue for its second quarter ended March 31 improved 5 percent to $497.7 million vs. the second quarter of 2009, and that its profit rose 7 percent to $35.9 million or 12 cents per share.
"We believe the gaming equipment replacement cycle will improve modestly in 2010 and that operating conditions at International Game Technology will begin to stabilize,'' Standard & Poor's said in its rating report.
"Our revision of the outlook to stable reflects our view that IGT's operating performance has stabilized and that the company will be able to sustain credit measures in line with the current rating in 2010," Standard & Poor's credit analyst Melissa Long said in a statement.
S&P expects EBITDA -- earnings before interest, taxes, depreciation and amortization -- at IGT will be flat to up modestly through the remainder of the company's fiscal year and that it will grow in the mid-single-digit percentage area in fiscal 2011. S&P noted cost-savings initiatives at IGT are a factor in the expectations for improved EBITDA.
"Our performance expectations reflect our belief that the (machine) replacement cycle reached a bottom in 2009 and that IGT will benefit from a modest improvement in replacement sales in 2010 and further improvement in 2011. We have also factored in an expectation that expansion into certain markets, including Maryland, Illinois and Italy, will drive improvement in IGT's revenue in fiscal 2011,'' S&P said.
S&P maintains its "slightly negative outlook for the U.S. gaming industry in 2010, as we expect lower play levels following a pullback in consumer discretionary spending during the recession to continue to negatively affect revenue.''
"While our economists currently forecast that consumer spending will increase 2.3 percent in 2010, we expect this growth to be weighted toward essential items rather than discretionary items such as gaming. We expect IGT to benefit from increases in consumer spending in fiscal 2011,'' S&P said.
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