Stock buyback, upgraded systems key to IGT's plan

The math involved with TJ Matthews' plan to boost the stock price of International Game Technology over the next few years isn't complicated:

Boost earnings with the development of sophisticated server-based gaming systems. Then divide that bigger pool of earnings among a smaller number of shares after an aggressive campaign to buy back stock.

Matthews, the chairman and chief executive officer of the Reno-based maker of slot machines, took the first step down that road last week as IGT's board approved the buy-back of 50 million shares.

That, combined with the existing authorization to buy back 3.5 million shares, would trim the number of IGT's outstanding shares by about 16 percent.

During the next couple of years, Matthews told securities analysts, the company also thinks it can boost its revenues and earnings with the introduction of server-based gaming systems, beginning in 18 months or so.

Those systems, which currently are in testing, are likely to allow players to download their favorite games to a slot machine saving them the trouble of moving from machine to machine or might allow casino operators to customize betting options for each player.

Casino operators, meanwhile, can customize their floor to take advantage of the demographics of their customers at any time quickly switching from video slots to poker, for instance.

While IGT has high hopes for server-based systems, their development is taking a bite out of the company's sales today.

U.S. casino operators are reluctant to replace their current slot machines, Matthews said, until they're certain that the new slots will be compatible with server-based systems.

And with little growth available from new markets for slot machines in the nation, Matthews said the U.S. market is likely to remain challenging for a while.

The company shipped 9,700 slots to North American casinos during the quarter, down from 12,900 a year earlier.

At the same time, he noted that slot-machine sales play an ever-smaller role for IGT.

In the quarter that ended March 31, for instance, slot-machine sales accounted for about 30 percent of the company's revenue. Gaming operations such as IGT's Megajackpots systems and the sale of software are becoming larger contributors.

Gaming operations generated revenues of $341 million and profits of $211 million during the three months that ended in March.

For the quarter, the company earned $128.2 million compared with $124 million a year earlier. That fell about 5 percent short of the expectation of securities analysts.