NCR Beats Estimate in 4Q

NCR Corp. (NCR - Analyst Report) posted fourth quarter 2011 earnings per share of 65 cents, beating the Zacks Consensus Estimate of 57 cents.

Revenue

NCR Corp. reported revenues of $1.64 billion in the fourth quarter, up 16.7% from $1.40 billion in the year-ago quarter. Financial services generated revenue of $908.0 million in the reported quarter, up 16.0% year over year. Global orders grew 24% annually and helped the company maintain a strong backlog entering into 2012.

Retail solutions revenue declined 2.1% year over year to $469.0 million in the quarter. This has primarily resulted due to the prevailing weakness in the European business. Orders in the quarter rose 11.0%, while the year-end backlog climbed 5.0% from the year-ago quarter and was consistent with the growth in 2012.

The Hospitality & Specialty Retail segment reported revenue of $105.0 million. The segment revenue was driven largely by product volumes and services revenue in the North America Theater. Entertainment revenue for the quarter was $46.0 million, up 44.8% from $29.0 million in the year-ago quarter.

Emerging Industries revenue was up 2.8% year over year to $110.0 million. The increase was driven primarily by the growth in services business, including Telecom & Technology customers in the European theaters, partially offset by lower revenues from the Japan Korea theaters.

Operating Results

Gross margin in the quarter was 22.2% versus 20.4% in the year-ago quarter. The year-over-year upside in gross margin was fueled by higher product sales, favorable mix and the successful implementation of cost optimization process.

NCR reported fourth quarter net loss from continuing operations of $13.0 million or 8 cents per diluted share compared with profit of $33.0 million or 20 cents per diluted share in the year-ago quarter. Excluding special items like impairment, pension expense, acquisition related transaction cost, amortization and legal settlement charges non-GAAP income from continuing operations was 65 cents per diluted share compared with 56 cents per diluted share in the prior-year quarter.

Balance Sheet & Cash Flow

Net cash provided by operating activities was $270.0 million during the quarter versus $182.0 million in the year-ago period. Cash flow was positively impacted by favorable working capital, which was due to a decrease in accounts receivable and inventory. NCR ended the quarter with $398.0 million in cash and cash equivalents compared with $341.0 million in the prior quarter. In the quarter, NCR had a debt balance of $852.0 million.

Guidance

The company expects full year 2012 revenues to increase in the range of 7.0% to 9.0%. GAAP diluted earnings per share are expected in the range of $1.47 to $1.54 and non-GAAP diluted earnings per share, excluding pension expense and special items, in the range of $2.36 to $2.43 per diluted share. The guidance excludes contributions from Entertainment business, as it has been divested.

Conclusion

NCR reported decent fourth quarter results, with revenues improving across most of its business segments and geographical regions. We are encouraged by the fiscal year guidance, and believe that the company is well positioned to deliver solid momentum across all its businesses. Despite exhibiting a decent operating performance, the company incurred a loss from continuing operations. Although the restructuring initiatives have begun impacting the results, we believe that the company should reduce its debt balance to further improve its operating performance.

The company has a Zacks#4 Rank, implying a short-term Sell rating.

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