Back to top

Image: Bigstock

NCR Tops Q1 Earnings & Revenue Estimates, Reaffirms '18 View

Read MoreHide Full Article

NCR Corporation started 2018 on a strong note, reporting better-than-expected results for the first quarter. The company’s non-GAAP earnings from continuing operations of 56 cents per share surpassed the Zacks Consensus Estimate of 44 cents. The reported figure also came in ahead of management’s guided range of 41-47 cents. On a year-over-year basis, however, the tally remained flat.

Revenues

The company’s revenues of $1.52 billion outpaced the Zacks Consensus Estimate of $1.47 billion, as well as came in 2.6% higher year over year.

The company’s Software revenues, on a reported basis, were up 2% to $460 million. The upswing was primarily due to a 9% and 8% increase in Cloud and Professional Services, which was partially offset by an 18% and 1% decline in Software License and Software Maintenance revenues, respectively.

Services revenues climbed 8% to $601 million on a reported basis. This upswing primarily stemmed from the company’s “channel transformation” initiatives, which resulted in growth of hardware maintenance and implementation services.

Hardware revenues, however, slipped 3% year over year, on a reported basis, to $456 million. Segment revenues from ATM, SCO and IPS declined 7%, 24% and 100%, respectively, which negatively impacted the overall hardware revenues. The decline in ATM revenues was due to low backlog at the beginning of the first quarter.

However, revenues from POS ascended 19%, which slightly offset the decline of the other three segments. The rise in POS revenues was chiefly attributable to “store transformation trends”.

NCR Corporation Price, Consensus and EPS Surprise

Margins

Non-GAAP gross profit for the quarter remained flat year over year at $431 million. Nevertheless, non-GAAP gross margin shrunk 80 basis points (bps) to 28.4% as benefits from productivity improvements in Services segment were more than offset by reduced software license revenues and lower Hardware margins.

Non-GAAP operating expenses during the quarter came in at $283 million, reflecting an increase from $273 million in the year-ago quarter, mainly due to increased sales investments as part of the company’s focus on expansion of its strategic offers.

Elevated expenses resulted in a decrease in income from operations, which on a non-GAAP basis, came in at $148 million, down from $158 million reported in the year-ago period. Also, operating margin contracted around 90 bps on a year-over-year basis to 9.8%.

Non-GAAP net income from continuing operations was $85 million compared with $87 million in the year-ago quarter.

Balance Sheet & Cash Flow

The ATM and POS manufacturer exited the quarter with cash and cash equivalents of approximately $348 million, down from $537 million reported in the previous quarter. Receivables were $1.34 billion.

However, NCR has a highly-leveraged balance sheet. The company ended the quarter with $3.04 billion of long-term debt in its book compared with $2.94 billion reported in the previous quarter.

In the first quarter, the company used $24 million of cash for operational activities. For the quarter, free cash outflow was $99 million.

During the quarter, the company repurchased $165 million of its common stock.

Guidance

The company reaffirmed its outlook for 2018. NCR anticipates revenues to be flat to up 3%. The Zacks Consensus Estimate is pegged at $6.65 billion.

Non-GAAP earnings per share are expected in the range of $3.30-$3.45. The Zacks Consensus Estimate is pegged at $3.34.

Per the U.S. tax reform, the company expects effective tax rate for 2018 to be 24%. The company expects free cash flow for 2018 to be around 90% of the non-GAAP net income.

Coming to the second-quarter outlook, NCR expects revenues in the range of -1% to +1%. The company expects non-GAAP earnings per share for the second-quarter quarter in the range of 60-65 cents. The Zacks Consensus Estimate is pegged at 74 cents.

Bottom Line

NCR reported impressive first-quarter results. The company’s focus on growth of cloud segment and modernization of services business are proving to be worthy, especially at a time when its ATM segment is not performing well. NCR is also focused on its strategy related to hardware manufacturing, aimed at reducing costs and headwinds from hardware cycles.

Moreover, the addition of products, including the likes of “Picklist Assist” for identifying fruits and vegetables purchased by a customer, has enriched its solutions portfolio as well.

Nonetheless, weakness in the ATM market and escalating costs pertaining to introduction of products, and other sales-related investments continue to be a drag on the company’s financials.

Zacks Rank and Key Picks

NCR carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are CoStar Group, Inc. (CSGP - Free Report) , Dell Technologies Inc. and Science Applications International Corporation (SAIC - Free Report) , all sporting a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term expected earnings growth rates for CoStar Group, Dell Technologies and Science Applications International are 16.8%, 9.1% and 5%.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot trades we're targeting>>


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


CoStar Group, Inc. (CSGP) - free report >>

Science Applications International Corporation (SAIC) - free report >>

Published in