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International Game Technology (NYSE:IGT) is scheduled to announce its second quarter 2011 results after the closing bell today.

Estimate revisions were trending downward over the last few days, so we prefer to remain on the sidelines for the time being.

The Zacks Consensus Estimate for the second quarter is pegged at 20 cents, flat year over year. IGT posted an average earnings surprise of negative 1.91% in the past four quarters.

IGT reported non-GAAP earnings of 21 cents per share in the first quarter, down 19.2% year over year. However, it inched past the Zacks Consensus Estimate. IGT posted revenues of $464.8 million in the first quarter, down 9.8% year over year. The decline in sales was due to weaker international openings as compared with the prior-year quarter.

In its first quarter conference call, IGT announced that it expects fewer new openings for fiscal 2011 as compared with the previous year. IGT guided earnings in the range of 79 cents to 87 cents per share for fiscal 2011. For further details please see IGT Shares Topple on Lower Revenues.

Estimate Revision Trend

Of the 19 analysts providing estimates for the second quarter, four revised their estimates downward in the past 30 days, while 2 moved their estimates upward.

In the past seven days, only one analyst revised the estimate downward, while none made an upward revision.

Casino gaming companies are going through tough times, primarily due to lack of demand for slot machines. Notably, the two nearest peers of IGT, WMS Industries (NYSE:WMS) and Bally Technologies (NYSE:BYI), lowered their outlook for fiscal 2011, citing soft demand trends.

We believe that lack of visibility on replacement sales and very few new openings will hurt IGT’s top-line growth going forward. We remain skeptical on IGT’s second quarter earnings due to sluggish revenue growth expectations. Currently, the Zacks Consensus Estimate is pegged at $481.0 million, down 2.8% from $495.0 million reported in the year-ago quarter.

Moreover, increasing debt (IGT recently signed a new five-year credit facility with a syndicate of banks worth $750.0 million) can hurt IGT’s profitability going forward.

However, IGT’s strong product pipeline, new partnerships, focus on expansion to new international markets and foray into interactive games will likely drive growth over the long term.

We maintain our Neutral rating over the long term (6–12 months). We believe IGT is focused on reducing its dependence on the domestic machine replacement cycle. This is a prudent strategy as it brings consistency in top-line growth and increases earnings visibility.

Currently, International Game Technology has a Zacks #3 Rank, which implies a 'Hold' rating on a short-term basis.

Source: International Game Technology: Earnings Preview