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IGT should beat the Street for the Dec Q but the next two Qs could be tough.

We are projecting a beat by IGT, $0.22 vs. consensus at $0.20, driven by higher unit sales.  Tempering our enthusiasm, however, are lower estimates for the March and June quarters.  Longer term, we think there is potential for IGT and the rest of the suppliers to out earn Wall Street expectations.  The big caveat for IGT is stability in the Wheel line of products.  As wrote about in our 11/27/09 post, “IGT: HOW LONG WILL THE WHEEL KEEP TURNING?”, IGT remains heavily reliant on the Wheel games at the same time recent court decisions have opened the playing field.

FQ1 2010 Earnings Call Preview

We think that IGT will beat the street this quarter but that estimates need to come down for the rest of the year. Longer term we think there could be upside to the numbers provided there is little degradation in the Wheel and the timing of new markets does not slip

  • We’re at $0.22 cents vs. $0.20 cents for FQ1 2010 and $0.82 for FY2010 vs. consensus of $0.89
  • FQ2 (March) at $0.18 vs the Street at $0.20
  • We think the Street’s F2011 estimate of $1.11 could actually be low, again if new markets do not slip and the Wheel is stable

FQ1 Details:

  • Product sales of $267.1MM & gross margin of 51.2%
    • 6.8k North America shipments, comprising of 4k new unit shipments, 0.3k deferred units, and 2.5k replacements.  We have total new & expansion shipments to NA markets of 12.5k units in the Dec quarter.  We assume that IGT gets 40% share excluding Aria, which will be recognized on a deferred basis. We estimate that NA replacements will be 7.5k for the market in the Dec Q
    • ASP of $15.5k in NA:  we expect MLD to become a greater % of AVP sales as IGT has materially expanded the content available on MLD making the $3,000 price difference more compelling
    • International product sales are more of a guess, but we have roughly 8k units

 Gaming operations revenues of $285.2MM and gross margin of 59.0%

    • 250 net new casino participation placements
    • 100 net new racino & leased placements
    • Average win per day of $50.30

 Deferred revenues:

    • IGT procured a 50% share of CityCenter’s 1,940 slots, which will be recognized over the next 8 quarters
    • Systems revenues for CityCenter will remain deferred for 2 years, after which MGM must decide whether to buy the system for a fixed fee or pay based on a variable daily fee model.  CityCenter will take the next 2 years to determine the ROI of IGT’s SB system.
    • Currently there are 8-10 locations with SB banks (including those trialing the product)

 Other assumptions:

    • SG&A:  $95.0MM
    • R&D:  $53.5MM
    • Net Interest expense:  $26.0MM
    • Tax rate:  39.5%