Tuesday, December 13, 2005

Diebold (DBD)-Significant Management Change

Yesterday, Diebold (DBD) announced the retirement of chairman and CEO, Wally O'Dell. O'Dell who had been CEO since 1999, had lost credibility in recent years with the execution difficulties that the company had experienced. Tom Swidarski, who had been appointed COO just two months ago, has assumed O'Dell's position.

The company has a long history of excess cash flow generation. Almost every year, earnings have been below CFFO and free cash flow is generated. This year has been a mess, with YTD CFFO at only $43 million, below net income YTD of $86 million. Free cash flow has been negative $9 million.

The company has been a buyer of its stock with 3.3 million shares purchased YTD, a remaining 500K authorization and a fresh authorization to buyback another 4 million shares.

This is a turnaround situation with a return on invested capital of only about 4.5% in the last 12 months versus a history of about 11-12%.

O'Dell's relationship with the street and key investors also appears to have soured. The board is to be congratulated for its resolve and its action in my opinion.


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