What: Despite reporting better-than-expected second-quarter results on Friday, shares of Scientific Games (NASDAQ:SGMS) fell as much as 17%. The stock ended the trading day down 14.5%.
The bearish sentiment toward the stock on Friday, however, may be related to another announcement the company made on the same day: Scientific Games is replacing CEO Gavin Isaacs with former Norwegian Cruise Line CEO Kevin Sheehan.
So what: For the second quarter, Scientific Games reported revenue of $729 million and a loss per share of $0.59. These results compare to revenue of $692 million and a loss per share of $1.19 in the year-ago quarter. Analysts, on average, expected revenue of $709 million and a loss per share of $0.81.
"Across our global operations, we continue to manage costs and execute on our strategies to deliver consistent revenue growth," said Scientific Games CFO Michael Quartieri in a company press release. "Our ongoing implementation of process improvements is generating operating efficiencies which, combined with fiscal discipline in our capital spending and a focus on improving our core working capital, is leading to higher cash flow and reducing our leverage."
The most likely reason for the stock's sell-off on Friday is the change in Scientific Games' CEO. As Bloomberg's Brooke Fox notes, Isaacs was regarded with "cult" status in the gaming industry. So his less-active role may make investors feel less confident in the company's future. In addition, investors may doubt whether Sheehan's resume is a good fit for a gaming company.
Now what: Sheehan has immediately stepped into the CEO position, while former Scientific Games CEO Gavin Isaacs will become vice chairman of the board of directors. The company noted that the integration of businesses is now behind it, and it's moving into a period where Isaacs can transition to the less-operational and more-strategic position of vice chairman.
"This is the right time to grow our leadership team and have someone of Kevin's talent, experience, and financial acumen take us to the next phase of growth and innovation," Isaacs said.