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NCR Q3 Earnings & Revenues Surpass Estimates, Decline Y/Y

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NCR Corporation’s (NCR - Free Report) third-quarter 2020 non-GAAP earnings of 54 cents per share handily outpaced the Zacks Consensus Estimate of 34 cents. However, the reported figure declined 26% on lower revenues, year over year.

The company’s revenues of $1.59 billion surpassed the consensus mark of $1.53 billion. The revenue figure, however, decreased 11% year over year on a reported basis. The company noted that the foreign-currency fluctuations did not impact the third-quarter results.

The coronavirus pandemic has hurt the company’s hardware business. NCR’s hardware revenues plunged 26% due to a 40% decline in ATM hardware and 6% fall in SCO/POS (Self-Checkout/Point-of-Sale) sales.

NCR Corporation Price, Consensus and EPS Surprise

NCR Corporation Price, Consensus and EPS Surprise

NCR Corporation price-consensus-eps-surprise-chart | NCR Corporation Quote

During the earnings conference call, the company noted that approximately $165 million or 85% of the decline in total revenues resulted from a weak hardware business performance. Moreover, a shift from selling perpetual software licenses to recurring revenues hurt quarterly revenues by $27 million.

Quarter Details

Banking revenues slid 18% on a reported basis and 17% at constant currency (cc) year over year, due to the pandemic-induced 40% decline in ATM hardware revenues. Shift from selling perpetual software licenses to recurring revenues also affected the year-over-year comparison.

During the July-September quarter, the company signed 250 banking deals to recurring revenue model which would have been previously sold as an upfront software license. Unfavorable currency exchange rates hurt the Banking segment’s top-line performance by 1%.

Retail revenues increased 3% on a reported basis and 2% on cc basis, mainly driven by increase in SCO revenues, partially offset by lower POS sale. Moreover, favorable foreign currency-exchange rates benefited the Retail division’s revenues by 1%.

Hospitality revenues slipped 20% on both reported as well as cc basis on the pandemic-related demand issues. Foreign-currency fluctuations did not have any impact on the segment’s results.

The company’s Digital Banking Solution witnessed positive momentum and added six new customers. Digital banking registered users grew 12% year over year to more than 24 million during the third quarter.

Margins

Non-GAAP gross profit of $446 million was down 13% year over year. Non-GAAP gross margin contracted 70 basis points to 28.1%. Lower revenues due to the pandemic and shift to recurring revenues are the key reasons behind the declines in gross profit and margin.

Non-GAAP operating expenses declined 7.4% year on year to $288 million, mainly on the company’s cost-cutting initiatives to address the business impact of the coronavirus pandemic. Its cost-cutting measures, included salary reductions, curtailing travels, and elimination of certain contractors.

Non-GAAP operating income declined to $158 million from the year-ago quarter’s $202 million. Non-GAAP operating margin contracted 140 basis points to 9.9% from the year-earlier quarter’s 11.3%.

Other Financial Details

NCR ended the September-end quarter with cash and cash equivalents of $1.61 billion compared with the $1.68 billion reported in the June-end quarter.

Free cash inflow was $150 million compared with the prior quarter’s $50 million. Net cash provided by operating activities was $212 million during the third quarter. In the first nine months of 2020, the company generated operating and free cash flows of $495 million and $299 million, respectively.

Notably, in order to strengthen its liquidity position, NCR suspended its share-repurchase program and merger and acquisition activities, and cut senior employee salaries, among other cost-cutting steps during the first quarter.

Additionally, on Mar 24, the company withdrew the remaining available funds of $630 million from its five-year, $1.1-billion revolving credit facility. Moreover, on Apr 13, the company issued $400 million of senior unsecured notes.

Furthermore, the company deleveraged its balance sheet by $200 million in August through redeeming $1.3 billion of debt and issuing $1.1 billion of debt.

Zacks Rank and Other Stocks to Consider

NCR currently flaunts a Zacks Rank #1 (Strong Buy).

Other top-ranked stocks in the broader technology sector include Zoom Video Communications (ZM - Free Report) , Brightcove (BCOV - Free Report) and CDW Corporation (CDW - Free Report) , all sporting a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Zoom, Brightcove and CDW is currently pegged at 25%, 15%, and 13.1%, respectively.

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