Surprisingly strong demand from Asia, and especially China, helped Diebold Inc. offset weak sales of automated teller machines in the United States and Europe in the second quarter.
"In Asia-Pacific, our second-quarter performance was stronger than expected, led by China," Thomas W. Swidarski, Diebold's president and chief executive, told analysts during a conference call Tuesday to discuss second-quarter results. "And it was the primary reason we exceeded our internal quarterly" earnings forecast.
Diebold, of North Canton, Ohio, completed several large orders to Chinese banks last year before the summer Olympics in Beijing, and the company had expected shipments there to decline in the first half of this year.
"We are now seeing a similar pattern in 2008, where ATM deployment in China is shaping up to be more front-end-loaded than in past years," Swidarski said. "Overall demand in the region remains strong, with orders up more than 50% during the second quarter. This performance was led by China, Thailand and India."
Gil Luria, an analyst with Wedbush Morgan Securities in Los Angeles, said the sales in China were "a really big surprise."
Luria also said that Diebold is "benefiting from its cost cutting, which is reducing its overhead," and that its efforts of focus on its service business are driving up margins.
Sales elsewhere in the world were mixed.
Spending was "well below the norm, particularly in Europe and in the U.S. regional bank space," Swidarski said. "And we don't expect a significant rebound in demand for the remainder of the year in these markets."
However, sales of Diebold's advanced, envelope-free ATMs to large U.S. banking companies, including Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co., remain strong.
JPMorgan Chase, for example, plans to deploy the machines in Washington Mutual branches. (JPMorgan Chase acquired the Seattle thrift company's banking operations last year.)
However, ATM orders from small U.S. banks are expected to decline 30% to 35% this year.
Swidarski said that financial conditions seemed to have bottomed out and that he is seeing new signs that banks may be ready to start investing in their ATM fleets.
"At one time, small banks would not let us in to talk to them, now we're are participating in a large number of" requests for proposals "and demonstrations," Swidarski said, though these have to turn into actual orders.
Diebold reported strong growth in Brazil, the company's only bright light in the Americas in the quarter.
In Russia, Europe's largest market for ATMs, and the rest of Eastern Europe, demand remained weak because of poor economic conditions, Diebold said.
A decline in oil prices has dramatically affected Russia's economy, and Diebold does not expect any economic recovery in Eastern Europe this year.
Western Europe also remains a soft market for ATMs Swidarski said.
For the three months that ended June 30, Diebold reported net income of $30.43 million, up 12% from last year's second quarter. Revenue fell 9% from a year earlier, to $700.5 million.
