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Unanticipated strong demand for ATMs in Asia helped Diebold Inc. offset relatively weak orders for the machines in the United States and in Eastern and Western Europe during the three-month period ended June 30.
"In Asia Pacific, our second-quarter performance was stronger than expected, led by China," Thomas W. Swidarski, the North Canton, Ohio-based ATM maker's president and CEO, told analysts during a conference call Tuesday. "And it was the primary reason we exceeded our internal quarterly [earnings per share] projections."
Diebold executives expected shipments in China to decline during the first half of this year after banks there ordered numerous ATMs in 2008's second quarter before the Summer Olympics in Beijing. Diebold did not disclose shipment data.
"We are now seeing a similar pattern to 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."
What occurred in China is one of the big takeaways from Diebold's second-quarter earnings, says Gil Luria, an analyst with Wedbush Morgan Securities in Los Angeles. "It was a really big surprise," he says.
Elsewhere in the world, Diebold's performance was mixed. "Spending levels, however, remain 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."
In the U.S., large national banks–Bank of America Corp., JPMorgan Chase & Co.– and Wells Fargo & Co. continue to deploy intelligent-deposit, or envelope-free, ATMs.
Chase, for example, plans to deploy envelope-free machines in former Washington Mutual Inc. branches, and Swidarski told analysts Diebold is "heavily engaged on the security side of the business" with Chase. Chase purchased Seattle-based WaMu in September.
Diebold, however, expects ATM orders from small banks to decline 30% to 35% this year. Despite the expected drop, Swidarski says the poor financial conditions affecting ATM orders appear to have bottomed out.
"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 proposal] and demonstrations," Swidarski says. Still, the demonstrations and requests for proposal have not turned into actual orders, he adds.
Brazil provided the only bright light in the Americas, Diebold says. In Russia–the largest market for ATMs in Europe–and in the rest of Eastern Europe, demand remained weak because of poor economic conditions, Diebold says. A decline in oil prices also has affected Russia's economy, say economists. Diebold does not expect an economic recovery in Eastern Europe this year.
Western Europe also remains a soft market, Swidarski said.
For the second quarter, Diebold reported net income of $30.4 million, up 12% from $27.2 million for the same three-month period last year. Revenues were down 9%, to $700.5 million from $768.7 million.
Swidarski was pleased with the company's earnings. "We outperformed our internal earnings projections," he said.
Luria also believes the ATM maker had a strong quarter. "Diebold did well considering the tough economic environment," he says. "They had strong growth in China and Brazil, and they improved the profitability in their service business with stronger margins."
Moreover, Diebold stands apart from competitors NCR Corp. and Wincor Nixdorf because it expects only a slight decline on a constant currency basis in its ATM business; both NCR and Wincor Nixdorf expect double-digit declines this year, Luria says. ATM
