| Diebold's profit falls 45% in 3Q

NORTH CANTON, Ohio - Diebold Inc. announced Oct. 26 that its profits fell 45 percent from the third quarter of 2004 to 3Q '05. According to a news release, net income was $26.4 million compared to $48.3 million a year earlier.

Revenue for the quarter increased 2.7 percent from year to year, but was $67 million lower than expected earnings announced in July.

"Clearly, this was a challenging quarter, particularly from an operational perspective," said Walden W. O'Dell, Diebold chairman and chief executive officer. "We remain confident in the strength of our brand and in our competitive position in the markets we serve. We have a strong portfolio of businesses in growing markets and continue to generate sales growth as product orders for Opteva increased significantly from the third quarter 2004."

Total revenue was $622.3 million, with revenue from the financial self-service segment down 1.6 percent. Security solutions revenue was up 9.4 percent, election systems revenue was up 15.3 percent and first-time Brazilian lottery systems revenue was $3.4 million.

Diebold officials said the shortfall occurred in the global financial self-service business, where lower-than-expected U.S. demand and customer installation delays left a dent. Delays in the Asia-Pacific segment related to a large customer in China also had an impact.

Operational issues - including ineffective supply-chain management, higher-than-expected manufacturing and product costs, continued challenges in achieving efficiencies in Europe-based manufacturing, higher energy costs, and delays associated with software issues - and Hurricane Katrina also took a bite out of the quarter.

"We've identified and implemented several actions within the organization designed to improve our long-term financial performance," O'Dell said. As previously announced, we've made positive changes in key leadership positions within the company, including a new COO and CFO, and have redesigned our organizational alignment to improve our core financial self-service business. We've also taken many steps toward a more strategic and disciplined approach to global pricing management, with more actions to come."

A $12 million loss resulted from delayed deliveries and reduced revenue as a result of Katrina, which includes $10 million of election systems equipment that had been scheduled for the Gulf region. The remainder of the revenue shortfall occurred in the security solutions business, resulting from softness in the North America bank market.

"We remain committed to our previously announced restructuring actions and are evaluating additional potential actions for 2005 and 2006 to improve our competitiveness," O'Dell added.

The company slashed expected quarterly earnings last month to between 32 and 37 cents a share - it came in at 37 cents. In September analysts surveyed by Thomson Financial projected 3Q earnings of 66 cents for the quarter.

Sam Ditzion, president and CEO of Boston-based Tremont Capital Group, a firm that specializes in strategic planning in the ATM industry, said Diebold is focusing its efforts on operational efficiencies. "Diebold had a challenging quarter relative to the unrealistically high expectations that had been set based on record-revenue growth in 2003 and 2004. Diebold's management has now refocused its efforts on improving margins by addressing cost and operational efficiency issues."