We knew IGT had more levers to pull than the other guys and was regaining some share but a beat and raise of this magnitude was a surprise. 



IGT had been our favorite supplier heading into earnings season because we felt it was the safest pick.  Despite our longer term concern with participation share, we felt IGT had more near-term margin levers to pull and ship share was on the rise over the next few quarters.  What we didn’t bank on was a big beat and raise.


For the first time in a really long time IGT not only beat consensus but also raised guidance.   The beat was across the board – higher product sales, better game operations, and better margins.  IGT’s guidance raise was due to a combination of cost efficiencies and reduction in borrowing costs.  IGT also appeared to gain ship share this quarter in North America (NA).



Q2 Detail

  • Product sales of $215MM beat our estimate by 3%, while gross margins were $18MM above our estimate
    • Total units recognized were in-line with our estimate but once again NA units beat our estimate while international units fell short of our estimate
    • ASP’s were below our estimate – decreasing 4% YoY and over $1k QoQ.  While IGT did not elaborate on the call – nor did any analysts bother to ask, part of the reason for the depressed ASPs was due to a new promotional launch, which we wrote about in our preview.  The other reason for depressed ASPs was due to the conversion of 1,200 leased units to for sale units at very low prices.  Leases often have buyout options so this is not that unusual but would also explain the depressed ASPs in the quarter.  We estimate that the sale of the leased units could have depressed ASPs by about $600.
    • Domestic gross margins were also a lot higher than we estimated although IGT guided that a more normalized margin should be around 52%.  We suspect that some of the margin lift has to do with growth of high margin software included in non-box sales.
    • While international units were weak, margins of 56% were the best that IGT has had in at least 10 quarters.  We assume that normalized margins are lower (low 50’s).
  • Gaming operations revenue of $267.5MM beat our estimate by 4% and gross margins were 5% above our estimate
    • The install base was 300 units better than we estimated
    • Daily yields were 3% above our estimate
  • Other stuff:
    • Excluding the $1.7MM restructuring charge, SG&A was $7MM higher
    • D&A was $3MM lower than we estimated.


  • IGT increased the midpoint of its guidance range by 5 cents. 
    • We estimate that the interest savings from the new credit facility and the swap accounted for $0.02
    • This quarter was a beat – we estimate it contributed at least 2 cents to the guidance raise
    • Also, better gaming operations results and lower D&A, offset by higher SG&A

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more

McCullough: ‘My 1-Minute Summary of My Institutional Meetings in NYC Yesterday’

What are even some of the smartest investors in the world missing right now?

read more

Cartoon of the Day: Political Portfolio Positioning

Leave your politics out of your portfolio.

read more

Jim Rickards Answers the Hedgeye 21

Bestselling author Jim Rickards says if he could be any animal he’d be a T-Rex. He also loves bonds and hates equities. Check out all of his answers to the Hedgeye 21.

read more

Amazon's New 'Big Idea': Ignore It At Your Own Peril

"We all see another ‘big idea’ out of Amazon (or the press making one up) just about every day," writes Retail Sector Head Brian McGough. "But whatever you do, DON’T ignore this one!"

read more