Press Coverage Fails to Note Any Connection to Failure of Their E-Voting Business
News You Can't Lose, Unless You Snooze, Plus Some Fascinating Analysis
By Winter Patriot on 7/27/2006, 8:26am PT  

Guest blogged by Winter Patriot, with a big assist from Brad and another from long-time BRAD BLOG friend and ally, Robert Lockwood Mills

Our friends at Diebold were all over the business pages yesterday, and the numbers seemed much more precise than the verbal descriptions. All the reports agreed that Diebold's second-quarter profits were down, compared to last year, by either 46 or 46.3 percent. They also seemed to agree on what lines of business Diebold pursues. And judging from what they've written, Dieblod has nothing to do with elections!

Pfew! What a relief! For a while there, I was starting to think these Diebold guys were a threat to our democracy! I guess I must have spent too much time reading Internet Blogs!

from AP:

Diebold Reports a 46 Percent Profit Drop, Hurt by a Restructuring Charge

NORTH CANTON (AP) --- Diebold, Inc., an automated teller machine maker, said Tuesday second-quarter profit declined 46 percent, hurt by a restructuring charge.

Quarterly profit dropped to $17.2 million, or 26 cents per share, from $32 million, or 45 cents per share, during the same period last year.

Results include a 10 cent restructuring charge relating to ending an information technology outsourcing agreement and a product development rationalization. Excluding those charges, profit was 36 cents per share.

Revenue grew 17 percent to $726.4 million, from $619 million.

Analysts, on average, predicted a profit of 35 cents on revenue of $654.8 million, according to a poll by Thomson Financial.

From TheStreet.com, much of the same, with a few additional details. Here Diebold is characterized as

a maker of automated teller machines and other business equipment

and this report mentions that

During the second quarter, Diebold repurchased about 1.9 million shares of its common stock. The company has 1.3 million shares remaining under its existing board authorization.

Meanwhile the Akron Beacon Journal is reporting that

Diebold, Inc.'s second-quarter earnings fell 46 percent from a year ago, but most of the problems company officials cited Tuesday have been known for months and Wall Street reacted by sending the stock up.

There are some other differently-worded reports floating around, but surely you get the drift...

What does all this tell us?

Frankly, my semi-frozen brain is a bit thick and I never did learn much about business, so I found some of this stuff confusing.

For instance: what does it mean for Diebold's overall picture that their quarterly profits are down but share prices are up? And what --- if anything --- does this have to do with the electronic voting machine scandal that's not-so-quietly enveloping so much of the country?

Dazed and confused, lost in the tall weeds, and with Brad on the road, I considered a tactic often used and with great effect by my nearly frozen father, Winter Patriarch, who has a gift for making stuff up as he goes along. A wonderful skill if you've got it; damnable if you haven't, and frankly I haven't. So instead of trying the old seat-of-the-pants routine, I decided to stay reality-based, and I fired some dumb questions at The BRAD BLOG's resident former Wall Street wizard, Robert Lockwood Mills.

I had a short and very interesting email exchange with Mr. Mills, during which time Brad weighed in with a few thoughts, and now it seems the best way to explain what they've been telling me is to let their words do the talking:

Here's Brad:

Notice how there's no comment in the entire report on their massive failures in the Electronic Voting industry, the class action Securities Fraud suit against them, a reported federal fraud (qui tam) suit against them, and myriad pending state lawsuits (in CALIFORNIA, ARIZONA, and COLORADO, for example) to keep their shitty, hackable, failed voting systems from being used in upcoming elections. The state of denial, aided by AP, continues.

This story has to do with the health of the company, and the continuing silence in the media about their problems.

AP continues to post press releases about Diebold news, but doesn't cover any of these enormous lawsuits that will effect the bottom line of the company. Big time. AP is clearly a facilatator for that company.

If/when they have to declare bankruptcy because of all this, folks (shareholders) will wonder: "Well, gosh, what happened? They seemed to be doing so well."

So that's the media angle; what about the business angle? Here's where I need a Street-savvy guide.

Enter Robert Lockwood Mills:

WP: Mr. Mills, What does all this mean?

RLM: I've been off Wall Street for five years, but my hunch is that their earnings, while bad, might have been a penny or two better than (very low) expectations. It's not at all unusual for a troubled stock to rally after posting bad earnings, because the market is aware of the company's problems and might have been selling the stock aggressively before the earnings were announced. It's called a "relief rally" (meaning, "well, that's over with"). I wouldn't assume more than that from the stock's performance the last few days.

Remember, Wall Street is amoral. It isn't moral or immoral...it's amoral. Traders and investors don't care a whit about whether Diebold is honest, whether it cares about our democracy, or even whether Wally O'Dell's soul has been prepared for the afterlife. Wall Street only cares about the bottom line...and, for the moment, the bad news is out. Diebold stinks, but it's now old news to Wall Street.

WP: Does it seem likely that Diebold may have been artificially propping up the price of their stock by buying so much of it lately?

RLM: Companies buy back their own stock for a variety of reasons. They have cash on hand, the stock is (historically) low, and/or they don't know what else to do with their money. I think it's important to recognize that HAVA has been a boon for Diebold; effectively, it has made their election machinery seem legitimate and useful, though we know better. Not one of the architects of that awful legislation has come forward and admitted it was a disaster.

Buying back their stock makes their earnings per share look better going forward (fewer shares outstanding). Still and all, when it hits the fan with the lawsuits (including RFK, Jr.'s firm's suit), I'm sure the company will be forced to exit the election-machine business in some fashion. They'll probably sell it.

Many thanks to Brad and Mr. Mills for sharing their insight ... and now I'm left to help you draw your own conclusions.

Listen: I think Brad and Mr. Mills are both right. Diebold stinks and Wall Street knows it. Diebold's elections division is a lemon and they'll probably sell it. (Well, maybe they won't actually get rid of it, but at the very least they'll shuffle some paper around in order not to go glug glug glug when the bottom falls out.) AP and all the so-called professional business analysts will continue not to mention it, and Diebold shareholders who only read the AP newswire might never even notice, and the World's Quietest News Story will lead us on many more twists and turns before we finally confront the beast.

That's what I think. What do you think?