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NCR Corp. (NCR) Q1 Earnings Beat, Revenues Lag; View Up

NCR Corporation NCR reported mixed first quarter 2016 results wherein earnings per share surpassed the Zacks Consensus Estimate but revenues fell short of the same. The company’s non-GAAP earnings (excluding acquisition-related costs, amortization of intangibles and other one-time items) of 38 cents per share beat the consensus mark of 33 cents. However, reported earnings decreased from 43 cents reported in the year-ago quarter.  
 

Quarter in Detail

NCR’s revenues of $1.444 billion missed the Zacks Consensus Estimate of $1.480 million and declined 2.2% on a year-over-year basis. However, on a constant currency basis, revenues were marginally up year over year.

Product revenues were down 9.3% on year-over-year basis whereas service revenues went up 2.8% during the quarter.

In the reported quarter, NCR changed its reportable segments to reflect changes in the reporting structure of the organization. The new reportable segments are Software, Services and Hardware segments.

The company’s total software revenue on a reported basis was up 1% and came in at $419 million. Services revenues increased 4% to $543 million, whereas Hardware revenues declined 11% on a year-over-year basis and came in at $482 million.

Non-GAAP gross margin was 27.4%, down 15 basis points (bps) from the year-ago quarter, mainly due to a decrease in Hardware revenues.

Income from operations on a non-GAAP basis was $139 million, down from $146 million a year ago. Operating margin, as a percentage of revenues, declined 26 bps on a year-over-year basis, primarily due to lower gross margin and higher operating expense as a percentage of revenues.

Non-GAAP net income from continuing operations was $50 million compared with $73 million in the year-ago quarter.

Balance Sheet & Cash Flow

NCR has a highly leveraged balance sheet. The ATM and POS manufacturer exited the quarter with cash and cash equivalents of approximately $333 million, up from $328 million in the previous quarter. Receivables were $1.31 billion compared with $1.25 billion in the previous quarter. The company has a long-term debt of $3.27 billion during the quarter.

Net cash provided by operating activities was $23 million during the quarter. Free cash flow in the quarter came in at $29 million. NCR repurchased roughly 8.6 million shares worth $213 million during the quarter.

Guidance

NCR raised its full-year 2016 guidance. The company now expects revenues to be in a range of $6.25 billion–$6.35 billion (previously $6.1 billion–$6.2 billion). The Zacks Consensus Estimate is pegged at $6.178 billion.

The company now expects non-GAAP earnings per share for full-year 2016 to range between $2.90 and $3.00 (previous guidance $2.85 and $2.95). The Zacks Consensus Estimate is pegged at $2.91.

Coming to the second-quarter outlook, NCR expects revenues in the range of $1.56 billion to $1.58 billion. The Zacks Consensus Estimate stands at $1.547 billion.

The company expects non-GAAP earnings per share for the second quarter to range between 60 cents and 65 cents. The Zacks Consensus Estimate is pegged at 71 cents.

Our Take

NCR reported mixed first-quarter 2015 results wherein the bottom line topped the Zacks Consensus Estimate but the top line missed the same. The company raised its full-year 2016 guidance and provided an encouraging second quarter revenue outlook.

Also, NCR’s growing exposure in the ATM and self-service kiosk spaces is encouraging, given the tremendous growth prospects in the respective markets. Continuous product launches, growing popularity of its self-service offerings and synergies from acquisitions are the catalysts. Continuous deal wins are the other growth drivers. Moreover, NCR strengthened its position in the POS market through the integration of Radiant Systems.

However, softness in the ATM business in mature markets, competition from Diebold Incorporated DBD and HP Inc. HPQ, and a high debt burden remain concerns.

Currently, NCR has a Zacks Rank #1 (Strong Buy).

Another well-ranked stock in the technology space is Intuit Inc. INTU, carrying a Zacks Rank #1.

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