Diebold Inc. Wednesday announced a restructuring of its North American operations as ATM sales to regional banks remained flat, contributing to dramatic drops in revenue for the fourth quarter and for all of last year.
The ATM maker is eliminating 350 full-time positions at its North American headquarters in North Canton, Ohio, Thomas W. Swidarski, Diebold president and CEO, told analysts during the manufacturer’s fourth-quarter and yearend earnings conference call today. The company will spend $15 million in severance costs, Bradley C. Richardson, Diebold executive vice president and chief financial officer, said during the call.
“These reductions will be largely completed by mid-February,” Swidarski said in a statement. “As always, these are extremely difficult decisions but necessary to ensure we’re in a position of strength for our industry.”
Sales of ATMs to regional banks, historically a key revenue driver for Diebold, remained flat as banks last year opened fewer branches, reducing sales opportunities.
“Several years ago, banks annually opened 3,500 to 4,000 branches. Last year they opened 1,800 to 2,000, and in 2010 we anticipate banks will open 1,500 branches. We have to make adjustments,” Swidarski told analysts during the call. “The U.S. is our largest market, and regional banks are our greatest concern to me. The outlook is very cloudy.”
Gil Luria, an analyst with Wedbush Securities in Los Angeles, says he does not expect a turnaround in the regional bank market this year. Bank of America Corp.’s completion in December of its rollout of Diebold intelligent-deposit ATMs compounds Diebold’s problems because regional banks generally are not buying the newer model ATMs, Luria says. “There is not another bank to take Bank of America’s place,” he says.
Charlotte, N.C.-based BofA, the nation’s largest bank-owned ATM deployer, owns some 13,800 intelligent-deposit ATMs. As of September, the bank owned 18,254 machines in total.
Diebold fourth-quarter and yearend earnings reflected the drop in sales to regional banks. The company reported revenue for the quarter ended Dec. 31 of $724.9 million, down 8.4% compared with $791.1 million a year earlier. Yearend revenue totaled $2.7 billion, down 12.9% from $3.1 billion in 2008.
Net income for the year fell 53%, to $41.6 million from $88.6 million in 2008. For the quarter, however, net income was up 142%, to $16.7 million from $1.1 million. Last year’s fourth-quarter earnings recorded depreciation of company assets and a restatement of the company’s financials.
“The earnings were little disappointing because of continued weakness in the U.S. market,” Luria says.
Financial self-service, which includes sales of ATM products and services, reported fourth-quarter revenue of $548.9 million, down 5.9% from $583.1 million a year earlier. Sales of ATM products recorded the largest drop, falling 16.3%, to $263.3 million from $314.4 million.
ATM sales continue to fall in North America, although the sales outlook is brighter in parts of Western Europe, China and Brazil, Swidarski said during the call. The company expects an uptick in ATM sales in late 2010.
The drop in U.S. ATM sales gives more momentum to the Diebold strategy of growing its integrated services, in which the company manages banks’ ATM networks instead of focusing on selling machines to financial institutions, Luria says.
Although Diebold is eliminating jobs in its corporate headquarters, the company is not cutting jobs in sales and services, Swidarski says. “We are putting more people closer to the customer in integrated services and deposit automation,” he said.
The company also is pushing sales of envelope-free ATMs to European banks. Diebold has had success selling such machines to an unnamed Belgium bank because the financial institution is redesigning its branches. “This should open opportunities for other parts of Western Europe,” Swidarski said.
