Falling demand for its automated teller machines and a settlement with the Securities and Exchange Commission drove down Diebold Inc.'s first-quarter earnings.
The North Canton, Ohio, company said Tuesday that its net income fell 76% from the first quarter of last year, to $3.7 million. Revenue fell 4%, to $691.9 million.
The earnings report came a day after Diebold said in an SEC filing that it had agreed to pay $25 million to settle a long-running investigation into its accounting methods. Though it has not yet paid the fine, it included the payment in its first-quarter results.
During a conference call with analysts, Thomas Swidarski, Diebold's president and chief executive, blamed the revenue decline on deteriorating market conditions in Australia, Russia and Eastern Europe. He also cited tighter budgets at U.S. regional banks, as well as the SEC settlement.
The company said it would eliminate 300 full-time jobs and lowered its earnings guidance for the rest of the year. It now expects revenue to fall 6% to 13% from 2008, compared to an earlier forecast of a 2% to 10% drop; earnings per share are expected to be $1.33 to $1.60, instead of $2.07 to $2.36.
The ATM markets in Russia and Eastern Europe have collapsed, Swidarski said. "We have taken Russia off the table. We have few orders there, but we expect zero from Russia for the rest of the year," he said.
The company also faces significant challenges in Australia and the United States, Swidarski said. "The deployment of capital by [U.S.] regional banks remains conservative. They are reluctant to make any capital investments," he said.
Gil Luria, an analyst with Wedbush Morgan Securities, wrote in a research note Tuesday that regional banks are "paralyzed by fear."
Diebold's "management broke down the weakness in regional bank spending to three factor — conservatism, lower branch openings and fear of impending FDIC assessments."
The SEC launched an informal inquiry into the way Diebold recognized revenue in May 2006, focusing on its revenue-recognition accounting procedure known as "bill and hold."
Under bill and hold, the company recorded revenue before it shipped merchandise to buyers. Diebold now recognizes revenue when customers receive the goods.
The SEC also investigated other accounting methods, including "prepaid," in which a customer pays Diebold in advance for the merchandise.
Diebold spokesman Mike Jacobsen said the $25 million fine would avert formal charges from the SEC.
Luria said: "This is a good thing. The company settled before it received a Wells notice. If Diebold had not settled, the investigation would have dragged out for years. Now the company can go back to managing its business of making and selling ATMs."
The SEC sends out a Wells notice when it plans to pursue civil action against a company.
Jacobsen said the settlement would not affect the Wells notices the SEC sent in March to several current and former employees, also related to the accounting investigation. "Resolution of this agreement only applies to the company, not the individuals," he said.
These included Kevin Krakora, who was then Diebold's chief financial officer, his predecessor Gregory T. Geswein and other people who have been involved with bill-and-hold accounting process.
Krakora subsequently stepped down from the CFO position but remains with the company. Geswein left the company in 2005.
