Diebold Nixdorf: Opportunity Or Death Spiral?

- Jun 14, 2018-

Summary

Diebold Nixdorf's share price has put in a horrible performance in the past 12 months.

The net debt remains high and the interest expenses are strangling the company.

It sounds like the ship is slowly turning around, and the management is still hoping to unlock the $240M in synergy benefits by 2020.

This idea was discussed in more depth with members of my private investing community, European Small-Cap Ideas.

Over here in Europe, we generally have two brands of ATM's used by financial institutions: the Diebold ATM's and the Wincor Nixdorf ATM's. When both companies announced Diebold would be acquiring Wincor and become Diebold Nixdorf (DBD), I initially was pretty enthusiast (the best comparison would be a Mastercard-Visa merger where two strong parts of a duopoly/oligopoly combine forces).


ChartDBD data by YCharts


Unfortunately my initial enthusiasm appeared unwarranted, and I'm glad I didn't initiate a long position as Diebold Nixdorf's share price has fallen by almost 50% in just 12 months. An opportunity? Or a death spiral?

Q1 was weak, very weak

In the first three months of the current financial year, Diebold saw its revenue decrease by almost 4% to$1.06B. Whereas the revenue from services and software increased by almost 4%, the revenue from the systems division fell by in excess of 15%. Fortunately the systems division is also very scalable, and Diebold's operating expenses fell by a relatively similar percentage.

Source: SEC filings

Although the cost of sales associated with the services and software increased by 7%, the gross profit fell by just 0.5%, which isn't too bad at all. Diebold also made an additional effort to cut the SG&A expenses (-$19M) and that's how it was able to reduce its operating loss from $49 to $21M. But indeed, a loss still is a loss, and what's perhaps even worse , is that an operating loss isn't even including taxes and interest expenses yet.