A month has gone by since the last earnings report for Scientific Games (SGMS - Free Report) . Shares have added about 2.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Scientific Games 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.
Scientific Games Posts Earnings in Q3, Revenues Miss
Scientific Games reported earnings of 15 cents per share in third-quarter 2019. The company had reported a loss of $3.85 per share in the year-ago quarter. The Zacks Consensus Estimate for earnings was pegged at 2 cents.
Revenues came in at $855 million, up 4% year over year. The reported figure, however, missed the Zacks Consensus Estimate by 0.2%.
Services revenues increased 3% to $452 million. Product sales were up 6.3% to $255 million. Instant product revenues were $148 million, up 4.2%.
Gaming revenues (53.1% of revenues) increased 1.3% year over year to $454 million.
Lottery revenues (25.7% of revenues) were up 6.3% year over year to $220 million. The company was selected as the exclusive supplier to the joint venture operating the Turkey National Lottery. Scientific Games was also selected as the exclusive terminal hardware partner to Sisal in Italy.
Moreover, in early October, the Florida Lottery selected Scientific Games as its primary instant games’ provider through 2027.
SciPlay revenues (13.6% of revenues) jumped 10.5% year over year to $116 million. This upside was driven by increased monetization of paying players, with ARPDAU up 9% to $0.47.
Digital (7.6% of revenues) revenues climbed 6.6% year over year to $65 million.
Consolidated adjusted EBITDA (AEBITDA) increased 5.5% year over year to $344 million. AEBITDA margin expanded 50 basis points (bps) to 40.2%.
Gaming AEBITDA decreased 3% year over year to $226 million. However, the Gaming AEBITDA margin shrunk 220 bps to 49.8%.
Lottery AEBITDA increased 7.6% from the year-ago quarter to $99 million. Moreover, Lottery AEBITDA margin expanded 60 bps to 45%.
SciPlay AEBITDA jumped 33.3% to $32 million. In addition, AEBITDA margin expanded 470 bps to 27.6%.
Further, Digital AEBITDA jumped 41.7% from the year-ago quarter to $17 million. Digital AEBITDA margins expanded 650 bps on a year-over-year basis to 26.2%.
Selling, general and administrative expenses flared up 2.9% year over year to $175 million. However, research & development expenses declined 6% to $47 million.
Balance Sheet & Cash Flow
As of Sep 30, 2019, cash and cash equivalents were $363 million compared with $369 million as on Jun 30, 2019.
Net debt was $8.6 billion ($9 billion in face value of debt outstanding less $363 million of cash and cash equivalents) at the end of the third quarter.
Net debt leverage ratio was 6.4 times. Scientific Games is aimed at achieving net debt leverage of approximately 5.5 times by the end of 2020.
Cash from operating activities was $141 million compared with the prior quarter’s $95 million. Free cash flow was $53 million compared with the $38 million recorded in the previous quarter.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 21.3% due to these changes.
Currently, Scientific Games has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Scientific Games has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.