North American and European consumers continue to shift away from cash and toward credit and debit cards. As a result, banks on those two continents are buying fewer automated teller machines. But ATM demand remains high in developing nations, where many stores only accept cash.
ATM makers NCR and Diebold are also diversifying into related products and offering more software and support services. We cover both of these stocks in our newsletter on U.S. investing, Wall Street Stock Forecaster.
NCR CORP. (New York symbol NCR; www.ncr.com) gets 52% of its revenue from ATMs. It also makes cash registers and self-serve checkouts (32% of revenue) and kiosks for theatres and arenas (10%). Maintenance services supply the other 6%. Overseas markets account for 60% of NCR’s revenue.
In the quarter ended March 31, 2014, NCR’s revenue rose 7.7%, to $1.5 billion from $1.4 billion a year earlier. That’s partly due to its January 2014 purchase of privately held Digital Insight Corp., whose software helps over 1,000 banks and credit unions manage their online and mobile transactions.
NCR paid $1.65 billion for this firm, which should add $350 million to its yearly revenue. Earnings fell 14.5%, to $53 million from $62 million. Per-share earnings declined 16.2%, to $0.31 from $0.37, on more shares outstanding.
Excluding unusual items, earnings per share fell 7.4%, to $0.50 from $0.54. That’s mainly because NCR borrowed the cash it needed to buy Digital Insight.
The company’s long-term debt of $3.9 billion is 71% of its market cap. However, it recently reorganized its employee pension plans, which should free up cash for debt repayments. NCR also holds cash of $515 million, or $3.07 a share.
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Stock tips: Services and software help cut reliance on ATM sales for Diebold
DIEBOLD INC. (New York symbol DBD; www.diebold.com) is a leading maker of automated teller machines. It also makes safes, vaults and building-security systems. The company gets 55% of its revenue from outside North America.
In the three months ended March 31, 2014, Diebold’s revenue rose 8.6% to $688.3 million from $633.5 million a year earlier. If you exclude the negative impact of currency exchange rates, revenue rose 12.2%. That’s mainly because the company completed two large orders for election and lottery machines in Brazil.
Diebold is shifting toward services and software, which give it recurring revenue and cut its reliance on ATM sales. Services and software accounted for 56% of its first quarter revenue.
Earnings improved to $9.8 million, or $0.15 a share, from a loss of $13.4 million, or $0.21 a share, a year earlier. Without costs related to a restructuring plan, which includes plant closures and job cuts, Diebold earned $0.24 a share, compared to a $0.04- a-share loss. The restructuring should save Diebold a total of $150 million by the end of 2015.
The $1.15 dividend yields 2.9%.
In the latest edition of Wall Street Stock Forecaster, we look at the earnings outlook for both of these stocks. We also examine the impact of the acquisition of Digital Insight on NCR’s balance sheet, and Diebold’s prospects for expansion in developing countries. We conclude with our clear buy-hold-sell advice on this stock.
If you’re a member of Pat’s Inner Circle and you’d like to ask a question about today’s article, please go to the question page reserved for you (be sure you’re logged in first). Click here to ask your question.
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North American and European consumers continue to shift away from cash and toward credit and debit cards. As a result, banks on those two continents are buying fewer automated teller machines. But ATM demand remains high in developing nations, where many stores only accept cash.
