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Why Diebold Nixdorf Stock Just Dropped 26%

What happened

Investors withdrew from Diebold Nixdorf (NYSE: DBD) stock Tuesday morning after the ATM manufacturer reported a big earnings miss for its fiscal third quarter 2019.  

Although Diebold's Q3 sales of $1.1 billion met analyst projections, the company reported a big per-share loss of $0.06 for the quarter, pro forma -- the opposite of the per-share profit of $0.24 that Wall Street had told investors to expect.  

Diebold Nixdorf shares are selling off in a big way in response -- down 25.8% as of 11 a.m. EDT.

Four women withdrawing cash from ATMs

Image source: Getty Images.

So what

The news was both worse, and better, than it seemed.

On the worse side, actual losses as calculated according to generally accepted accounting principles (GAAP) were far greater than the per-share headline number of $0.06 -- $0.46 per share. But not all the news was bad.

Although quarterly sales declined 4% year over year, Diebold noted that it generated positive operating cash flow of $75 million in the quarter (as opposed to last year's Q3, when it burned cash). Free cash flow was also positive -- $65.1 million. Gross profits grew, and net losses shrank -- even "$0.46 per share" doesn't sound so bad when compared to the $3.13 per share Diebold lost a year ago.

Now what

Looking forward, Diebold updated its financial guidance to show that by year-end, while sales will come in weaker than previously expected ($4.4 billion vs. $4.5 billion), it expects to have generated positive free cash flow of between $70 million and $100 million. Arguably, that's an improvement over its previous prediction that it would be only "modestly positive" this year.

Of course, even taken at the high end, this leaves Diebold selling for an enterprise value of $2.7 billion, or about 27 times its expected free cash flow. That's hardly a cheap valuation, and with sales continuing to shrink, it's probably a good reason for investors to be selling Diebold stock today.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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