DIEBOLD INC. $39 - New York symbol DBD

DIEBOLD INC. $39 (New York symbol DBD; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 64.3 million; Market cap: $2.5 billion; Price-to-sales ratio: 0.9; Dividend yield: 2.9%; TSINetwork Rating: Average; www.diebold.com) is a leading maker of automated teller machines (ATMs). It also makes safes, vaults and building-security systems. The company gets 52% of its revenue from overseas.

Diebold’s revenue rose 10.1%, from $2.7 billion in 2009 to $3.0 billion in 2012. That’s mainly because of pent-up ATM demand in the wake of the 2008 financial crisis. As well, U.S. banks had to upgrade their ATMs to comply with the Americans with Disabilities Act. However, revenue in 2013 fell 4.5% to $2.9 billion, due to slowing sales of ATMs to regional U.S. banks and unfavourable currency rates.

The company earned $0.97 a share (or a total of $65 million) in 2009, but it lost $0.37 a share (or $25 million) in 2010 due to goodwill writedowns and other charges. Earnings rebounded to $2.21 a share (or $143 million) in 2011, but additional writedowns cut them to $1.20 a share (or $77 million) in 2012.

New plan will deliver big savings

In 2013, Diebold began a new multi-year restructuring plan that includes selling two U.S. plants to one of its suppliers and cutting jobs and other costs. Diebold feels these moves will save it a total of $150 million by the time it completes the plan by the end of 2015.

So far, the company has saved about $60 million. If you exclude restructuring costs and other unusual items, Diebold earned $138.7 million, or $1.36 a share, in 2013.

The company is putting these savings to work in a number of ways. For example, it is expanding its service business, including repairing, maintaining and monitoring ATMs and their software. That gives it recurring revenue and helps cut risk. In 2013, services accounted for 57% of Diebold’s revenue, and it aims to raise that to over 60% in the next two years.

Energy-efficient ATM should be a hit

In addition, Diebold continues to develop innovative new products. It spent $92.3 million (or 3.2% of its revenue) on research in 2013, up 7.5% from $85.9 million (or 2.9% of revenue) in 2012.

Thanks to this spending, the company has started selling an ATM in India that runs on either solar power, regular electricity or an internal battery. That makes it 40% more efficient than regular ATMs.

Diebold is also paying down debt. At the end of 2013, its long-term debt was $480.2 million (or 19% of its market cap), down from $617.5 million in 2012. It also holds cash of $473.7 million, or $7.39 a share.

The company’s earnings should improve to $1.75 a share in 2014. The stock trades at a somewhat high 22.3 times that estimate. However, that’s a reasonable multiple, particularly as Diebold’s ATM sales continue to rise in China, India and Latin America.

Long history of rising dividends

The current annual dividend rate of $1.15 a share yields 2.9%. The company has increased the payout annually for 60 consecutive years, and it will probably do so again this year.

Diebold is a buy.

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