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NCR Corp. (NCR - Analyst Report) posted second-quarter 2013 earnings per share of $0.65, in line with the Zacks Consensus Estimate.

Revenues

NCR reported revenues of $1.54 billion in the second quarter of 2013, up 8.9% from $1.41 billion in the year-ago quarter. The year-over-year improvement in revenues was mainly due to a 5.2% increase in Product revenues and a 12.7% increase in Service revenues.

NCR is generating decent growth in software and service revenues across its segments. Moreover, the company’s business volume is increasing regularly.

Revenues from the Financial Services segment were $782.0 million, down 1.0% from the year-ago quarter. The downside was driven by the decline in the Americas theater offset to a considerable extent by the growth in the Asia Middle East Africa (AMEA) theater.

In the Retail Solutions segment, the company generated revenues of $515.0 million, up 26.0% from the second quarter of 2012. The increase in revenues is driven by a decent improvement in the Americas, Europe and AMEA theaters. Moreover, excluding Retalix, revenue growth was 6.0% in the reported quarter.

The Hospitality segment witnessed a 22.0% increase in revenues and the growth can be attributed to an improvement in the American theater business.

Emerging Industries’ revenues were $80.0 million, down 5.0% from the second quarter of 2012. The decrease in revenues was mainly driven by declines in the Emerging Industries revenues in the Americas and Europe theaters.

Operating Results

Gross margin in the quarter was 27.8% versus 26.5% in the year-ago quarter. Gross margin improved 121 basis points year on year, mainly due to the improvement in the high-margin software business. The company also had a good core gross margin expansion related to its core business activity.

NCR reported net income from continuing operations of $86.0 million or $0.51 per share in the quarter, compared with a profit of $89.0 million or $0.54 per share in the year-ago quarter. Excluding special items like impairment, acquisition related transaction costs, amortization and legal settlement charges, non-GAAP income from continuing operations was $0.65 per share compared with $0.61 per share in the prior-year quarter.

Balance Sheet & Cash Flow

Net cash used in operating activities was $32.0 million compared to net cash provided by operating activities totaling $21.0 million in the previous quarter. Without considering the impact of $80 million pension settlement payment that the company made to the U.S. non-qualified pension plans during the quarter, free cash flow for the quarter came in at a negative ($21) million.

Guidance

For the full-year 2013, NCR expects revenues to increase in the range of 9% to 11% compared with 2012 revenue. Moreover, NCR expects its full-year 2013 income from operations (GAAP) in the range of $546 million to $566 million, while non-pension operating income (NPOI)is expected to remain in the range of $700 million to $720 million. GAAP earnings per share are expected in the range of $2.08 to $2.18 and non-GAAP earnings per share in the range of $2.70 to $2.80.

Our Take

NCR reported decent second-quarter results, with revenues growing across all segments and earnings per share surpassing the Zacks Consensus Estimate. The company also maintained its fiscal 2013 guidance anticipating more balanced revenue growth across its core Financial, Hospitality and Retail verticals. The company also benefited from a gross margin expansion, as the company witnessed a decent amount of high-margin software business.

The company also witnessed a meaningful increase in its bottom-line. NCR’s growing exposure into ATM and self-service kiosk spaces is encouraging, given tremendous growth prospects in the respective markets. Continuous product launches, growing popularity of its self-service offerings and synergies from acquisitions are catalysts. However, softness in ATM business in the mature markets and stiff competition from Diebold Inc. (DBD - Snapshot Report), European exposure and high debt burden are concerns.

The company has a Neutral recommendation.

Investors could also consider other technology stocks, such as Orbotech Ltd. (ORBK - Snapshot Report) having a Zacks Rank#1 (Strong Buy) and Micron Technology (MU - Snapshot Report), having a Zacks Rank #2 (Buy).

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