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NCR Corp (NCR) Q1 Earnings & Revenues Beat, Increase Y/Y

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Keeping its earnings streak alive for the 15th time in a row, NCR Corporation (NCR - Free Report) reported better-than-expected results for the first quarter of 2017. The company’s non-GAAP earnings (excluding divestiture and liquidation losses and other one-time items) per share from continuing operations of 56 cents surpassed the Zacks Consensus Estimate of 46 cents and surged 47.4% year over year.

The company’s quarterly earnings also came ahead of the guided range of 43–48 cents. The robust bottom-line performance was primarily driven by strong top-line growth along with efficient cost management and lower share count.

Shares of the company rallied more than 2%, yesterday, following the encouraging results.

Notably, the stock outperformed the Zacks categorized Computer-Integrated Systems industry in the last six months. NCR’s shares returned 44.9% compared with the industry’s gain of just 3.6%.

Quarter in Detail

The company’s revenues of $1.478 billion beat the Zacks Consensus Estimate of $1.460 billion and increased 2.4% on a year-over-year basis. On a constant currency basis (i.e. excluding FX impact and IPS business divesture), revenues were up 9% year over year.

During the quarter, the company witnessed strong growth in Software business which benefited from continued expansion of its cloud and software license offerings.

During second-quarter 2016, NCR modified 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 Software revenues on a reported basis were up 8% to $452 million. The year-over-year increase in software revenues was primarily due to 29%, 6% and 6% increase in Software license, Cloud and Professional Services revenues, respectively.

Services revenues increased 3% to $557 million.

Hardware revenues however decreased 3% on a year-over-year basis and came in at $469 million. In the Hardware segment, revenues from ATM and IPS declined 8% and 94%, respectively, while that from SCO and POS surged 124% and 17%, respectively. The increase in SCO and POS revenues was primarily due to store transformation growth during the quarter.

Non-GAAP gross profit for the quarter increased 9.1% and came in at $432 million, primarily due to higher revenues. Also, non-GAAP gross margin was 29.2%, up 180 basis points (bps) from the year-ago quarter.

Income from operations on a non-GAAP basis was $160 million, up from $139 million a year ago. Also, operating margin expanded 120 bps on a year-over-year basis, primarily due to strong execution as well as better productivity.

Non-GAAP net income from continuing operations was $87 million compared with $61 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 $401 million, down from $498 million in the previous quarter. Receivables were $1.29 billion compared with $1.28 billion in the previous quarter.

However, NCR has a highly-leveraged balance sheet. The company ended the quarter with $3.1 billion of long-term debt in its book.

In the first quarter, the company generated operating cash flow of $43 million and free cash flow was ($12) million.

During the quarter, the company repurchased $350 million of its common stock. Concurrent with its first-quarter earnings release, the company announced that it intends to make share repurchases worth $300 million.

Guidance

Buoyed by the better-than-expected first quarter performance, NCR raised its revenue and earnings outlook for 2017. However, the second-quarter guidance was slightly disappointing.

For the year, the company now anticipates revenues in the range of $6.63–$6.75 billion (previous guidance was $6.60–$6.72 billion). The Zacks Consensus Estimate is currently pegged at $6.670 billion. Non-GAAP earnings per share are now expected in the range of $3.32–$3.42 (previously $3.25–$3.35). The mid-point of the guidance range is higher than the Zacks Consensus Estimate of $3.32.

The company continues to expect operating cash flow in the range of $805 million to $830 million and free cash flow between $500 million and $525 million.

Coming to the second-quarter outlook, NCR expects revenues in the range of $1.59–$1.62 billion (mid-point $1.605 billion). The Zacks Consensus Estimate stands at $1.637 billion.

The company expects non-GAAP earnings per share for the second quarter in the range of 72–77 cents (mid-point 74.5 cents). The Zacks Consensus Estimate is pegged at 79 cents.

Our Take

NCR reported encouraging first-quarter 2017 results wherein the top and the bottom line surpassed the Zacks Consensus Estimate. Also, both revenues and earnings increased on a year-over-year basis, primarily due to strong growth in its software business. Although, the company slightly disappointed on its second-quarter guidance, its strong full-year 2017 outlook makes us optimistic about its future performance.

Also, NCR’s growing exposure in the ATM and self-service kiosk space 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 also drive growth.

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

Currently, NCR carries a Zacks Rank #2 (Buy).

Another stock worth considering in the technology sector is Computer Sciences Corporation (DXC - Free Report) which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The stock has an expected long-term EPS growth rate of 8%.

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