With the 2004 presidential election less than two weeks away, and the fallout from the Florida recount still a lingering part of the political landscape, the bitterly contested race once again figures to be decided by a razor-thin margin. This year's outcome, though, is less likely to hinge on the infamous "hanging chad" now that Diebold
In 2002, Congress passed the "Help America Vote Act," allocating $3.9 billion in federal funding to help overhaul the elections process and replace outdated punch-card systems. As the market leader in providing state-of-the-art electronic voting machines, much of this cash will find its way to Diebold's bottom line. In fact, up to 50 million people (nearly one in three voters) in 42 states will be casting their ballots electronically on Nov. 2.
Ironically, though, it is Diebold's election systems business that is being blamed for this morning's weak third-quarter results. The election systems subsidiary had a negative impact of $0.04 on earnings (after contributing $0.06 last year), which at $0.67 met reduced expectations but were essentially flat from the year before. Costs related to a civil lawsuit in California filed by critics of electronic voting also took a toll, erasing a nickel from earnings.
Fears of software glitches, system unreliability, and possible manipulation by computer hackers has limited both demand and enthusiasm for electronic voting. Some states, such as Ohio, have delayed purchases of new voting equipment, forcing Diebold to slash its projected annual revenues for this business from $170 million to less than the $100 million raked in last year. Third-quarter revenues plummeted 28% to 34.4 million.
It is a safe bet that many jurisdictions will be watching the upcoming election closely for signs of faulty equipment, which might cripple future business. A flawless election would be reassuring, though, and might sway some of the undecided. Furthermore, Nevada has already adopted touch-screen systems that leave a paper receipt trail -- which alleviates many tampering concerns -- and other states are likely to follow.
Nevertheless, this business represents a mere 5% of Diebold's revenues, which are primarily derived from the sale and service of Automated Teller Machines. The company controls two-thirds of the domestic ATM market, and is second only to rival NCR
Regardless of the election, wrinkles with the emerging technology will eventually be ironed out, and electronic voting is likely here to stay. In the meantime, Diebold's core business remains strong, with double-digit increases in new orders, a swing to positive free cash flow, and earnings (excluding election systems) growth of 18%.
Investors who like the prospects of a company with a clearly defined lead in two distinct industries -- one steady and predictable, the other new and potentially explosive -- may want to consider a vote for Diebold.
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Fool contributor Nathan Slaughter owns none of the companies mentioned.