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Scientific Games (SGMS) Up 2.9% Since Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Scientific Games Corp SGMS. Shares have added about 2.9% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is SGMS due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Recent Earnings

Scientific Games reported fourth-quarter 2017 loss of 28 cents per share, in-line with the Zacks Consensus Estimate and narrower than the year-ago quarter’s loss of 82 cents.

Revenues increased 9.4% from the year-ago quarter to $823 million and surpassed the Zacks Consensus Estimate of $810 million. The growth was driven by higher services (up 8.2%), product sales (up 10.2%) and instant game sales (up 7.5%).

Quarter Details

Gaming Segment (59.8% of total revenues) revenues increased 6.9% year over year to $492.5 million in the fourth quarter. The increase can primarily be attributed to growth in Gaming Machine sales and Gaming Systems of 12% and 30.7%, respectively. This was partly offset by lower revenues in Gaming operations and Table Products that decreased 2% and 8.9%, respectively. Favorable foreign currency exchange also impacted revenues by $6.3 million.

During the quarter, replacement unit shipments in the United States and Canada increased 23% on a year-over-year basis to 4,421 units, driven by high adoption of the TwinStar J43 and Pro Wave cabinets. International shipments increased 7% to 4,409 units. Average Selling Price (ASP) increased nearly 3.6% year over year to $16,858 in the reported quarter.

The year-over-year growth in Gaming Systems revenues was driven by increased system installation in casinos based in Alberta as well as a rise in hardware sales backed by shipment of new iVIEW4 player-interface display units.

However, Table Products suffered from a decline in new shufflers sales and other table game products. In the last year, international sales due to opening of new casinos mainly in Asia had driven results. Besides, Gaming Operations revenues fell due to a decline in installed base of WAP and premium participation gaming machines.

Lottery Segment (26.4% of total revenues) revenues were up 8.8% from the prior-year quarter to $217.2 million. Revenues from Instant Games, Services and Product sales increased 7.5%, 3.3% and 31.8% from the year-ago quarter, respectively. The surge in Product revenues was driven by an increase in hardware and software sales in international markets. Holiday-themed games and Willy Wonka Golden Ticket instant games drove revenues in the United States.

Interactive Segment (13.8% of total revenues) revenues surged 23.7% year over year to $113.3 million on the back of robust performance from Social Gaming–B2C, which grew 27.7%.

Social gaming B2C revenue growth reflected a robust performance from apps like Jackpot Party Social Casino, Quick Hit Slots, 88 Fortunes and Bingo Showdown, which contributed significantly.

Operational Details

Attributable earnings before interest, taxes, depreciation and amortization (AEBITDA) increased 11% from the year-ago period to $324.5 million driven by higher revenues, profitable revenue mix and increasing operating efficiency. AEBITDA margin expanded 40 basis points (bps) to 39.4%.

Gaming AEBITDA increased 9% year over year to $237.8 million. Gaming AEBITDA margin expanded 80 bps to 48.3%.

Lottery AEBITDA increased 20% from the year-ago quarter to $94.6 million. Lottery AEBITDA margin expanded 400 bps to 43.6% driven by higher revenues and a profitable revenue mix.

Interactive AEBITDA surged 37% to $26.9 million and margin expanded 220 bps to 23.7%.

SG&A increased 22.4% year over year to $167.7 million in the reported quarter. However, research & development (R&D) expenses declined almost 7.3% to $45.8 million.

As a result, reported operating income in the quarter was $97.2 million. In the year-ago quarter, the company reported operating loss of $12.3 million.

Interest expense declined almost 9% from the prior-year quarter to $150.2 million in the reported quarter.

Balance Sheet & Cash Flow

Scientific Games exited the quarter with cash and cash equivalents of $788.8 million compared with $196.4 million in the previous quarter. The company’s long-term debt was $8.7 billion compared with nearly $8.1 billion at the end of previous quarter.

Cash flow from operations was $118.1 million, compared with $109.5 million in the previous quarter.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimate flatlined during the past month. There has been one revision higher for the current quarter compared to one lower.

Scientific Games Corp Price and Consensus


Scientific Games Corp Price and Consensus | Scientific Games Corp Quote

VGM Scores

At this time, SGMS has a strong Growth Score of A and a grade with the same score on the momentum front. The stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is more suitable for growth and momentum investors than value investors.


SGMS has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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