IGT may have weathered the storm better than BYI and WMS.



What does the big guide downs by WMS and BYI mean for IGT?  Probably not as much as people think.  Lower earnings at BYI was concentrated in the systems business and a company specific mix shift.  On the surface, the WMS

pre-announcement looks like it would have direct implications for IGT’s quarter.  The WMS miss versus our expectations was almost entirely due to lower products sales and lower product gross margins.


So why won’t IGT punt the quarter as well?  Well, we do expect a slight miss – we are at $0.19 versus the Street at $0.20 as we wrote about in our 4/6/11 IGT earnings preview.  While we are constructive on the long-term outlook for all the suppliers, we’ve favored IGT over the near term for a few reasons that may be playing out. 


First, our view is that over the near-term, WMS was a market share loser while IGT and BYI were likely gainers.  BYI’s miss was not related to product sales but WMS was, so we may have been right.  Further, during our trip to Vegas in late March, we didn’t get any indication that replacement demand had subsided in any way for IGT.  Thus, market share losses could’ve contributed to the WMS guide down.  Second, we’ve maintained that IGT has more margins levers to pull which we clearly saw in the company’s FQ1 and guidance. 


Does this mean we feel rock solid confident in IGT’s FQ2?  Not really but we do believe investors are seeing a worse picture as painted by WMS and BYI than reality.  IGT is off almost 7% from its recent high on April 6th, and that is before today’s likely drop.  A slight miss or better next week will likely be a big boost for the stock.

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