Diebold Upbeat on Growth Despite Big Profit Drop in 1Q

Diebold Inc. brushed off its steep drop in profit in the first quarter, promising that roughly three-quarters of its projected income will come in the second half of the year.

Diebold said its income fell almost 90%, to $2.5 million, from a year earlier. Its revenue slipped by 0.8%, to $614.2 million.

The North Canton, Ohio, ATM maker is reeling from bad investments in Europe that led it to rethink its distributor relationships.

In 2000, Diebold spent roughly $160 million to buy the automated teller machine assets of Getronics NV in Amsterdam and Groupe Bull in Paris. At the end of last year, Diebold wrote off all of the goodwill related to those acquisitions.

Thomas Swidarski, Diebold's chief executive, said the company is still restructuring those assets. Those costs, he said, could possibly spill over into next year's expenses.

"It's frustrating and disappointing for all of us," Swidarski said on a conference call with analysts Wednesday. "We have to turn our attention … to more strategic things that we are going to accomplish this year."

Some analysts said they were shocked by the gravity of its decline in profit.

"I'm surprised by the magnitude of operating losses in the first quarter — $10 million — up more than [Diebold] lost in the entire year of 2010," Matt Summerville, of KeyBanc Capital Markets, said on the conference call.

In the past, Diebold said it was planning to reduce its operations in Europe, the Middle East and Africa. Executives said it lost more cash this past quarter than they expected.

Swidarski said increased order activity in North America will be a primary driver of business for the remainder of the year. Swidarski said that he expects 75% of the company's 2011 earnings to occur in the second half of the year — "with more profit coming in the fourth quarter than the third," he said.

Diebold expects growth in its security business, which was recently solidified by a pact to provide surveillance for World Trade Center Tower 4 in New York and the entire transportation hub beneath the World Trade Center site.

"They laid out an argument for why a lot of the revenue is going to come in the second half of the year," said Wedbush analyst Gil B. Luria.

"It has to do with large ATM deals in Brazil and in China. It has to do with their election business in Brazil. It even has to do with a lot of business that they have that they say will only ramp up in the second half of the year."

Luria said it's a fairly "credible" argument, "but when a company tells you it's all going to come at the end of the year, you are going to find out how good the year was in the final three months — and that's why investors are reacting the way they are."

In midday trading Wednesday, Diebold's stock price was down 6.6%, to $34.52.

Luria said that overall, Diebold is in good shape, despite its troubles in Europe, the Middle East and Africa.

"Outside of the EMEA, the business is actually doing pretty decent," Luria said. "EMEA is what is dragging everything down."

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