It has been about a month since the last earnings report for NCR Corporation . Shares have lost about 17.7% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
NCR Beats on Q3 Earnings, Revenues Miss, Lowers '17 View
NCR reported mixed results for third-quarter 2017. The company’s non-GAAP earnings (excluding restructuring, acquisition-related expenses and other one-time items) from continuing operations of 93 cents per share surpassed the Zacks Consensus Estimate of 90 cents and surged 6.9% year over year.
Quarterly earnings also came toward the higher end of the company’s guided range of 88-93 cents. The robust bottom-line performance can primarily be attributed to efficient cost management and a lower share count.
Revenues
The company’s revenues of $1.663 billion missed the Zacks Consensus Estimate of $1.683 billion and decreased a marginal 0.8% on a year-over-year basis. The softness in revenues during the quarter was primarily impacted by weakness in the ATM business.
Per the company, “ATM orders continue to be negatively impacted by large customer delays in spending in North America, weakness in India, the Middle East and Africa, and the upcoming Windows 10 conversion.”
The company’s product revenues came in at $657 million, down 7.2% from the year-ago-quarter. However, service revenues increased 3.8% year over year and came in at $1.006 billion.
During second-quarter 2016, NCR modified reportable segments to reflect changes in its structure. The new reportable segments are Software, Services and Hardware segments.
The company’s Software revenues on a reported basis were up 2% to $476 million. The increase was primarily due to a 5%, 6% and 3% increase in Cloud, Professional Services and Software maintenance revenues, respectively. Nonetheless, Software license was down 12%. Notably, net ACV during the quarter increased 37% and came in at $16 million in the quarter.
Services revenues increased 3% to $609 million on a reported and constant currency basis. The increase was primarily due to hardware maintenance growth.
Hardware revenues however decreased 6% year over year on a reported basis to $578 million.
The segment revenues from ATM and SCO declined 16% and 24%, respectively, which negatively impacted the overall hardware revenues. However, revenues from POS surged 19%, while that of IPS remained flat on a year-over-year basis. The increase POS revenues were primarily driven by new products rollout and replacements. On a constant currency basis, Hardware revenues decreased 7%.
Margins
Non-GAAP gross profit for the quarter decreased 1% and came in at $486 million, primarily due weakness in ATM business and unfavorable revenue mix. Further, the non-GAAP gross margin decreased 10 basis points (bps) to 29.2%, mainly due to lower software license revenue and reduced hardware margins.
Income from operations on a non-GAAP basis was $235 million, up from $230 million a year ago. Also, operating margin expanded 40 bps on a year-over-year basis, primarily due to strong cost control measures, lower employee compensation expenses as well as better productivity.
Non-GAAP operating expenses during the quarter came in at $251 million, reflecting an increase from $261 million in the year-ago quarter.
Non-GAAP net income from continuing operations was $143 million compared with $135 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 $405 million, up from $377 million in the previous quarter. Receivables were $1.41 billion compared with $1.32 billion in the previous quarter.
However, NCR has a highly-leveraged balance sheet. The company ended the quarter with $2.98 billion of long-term debt in its book as compared with $3 billion reported in the previous quarter.
In the third quarter, the company generated operating cash flow of $133 million and free cash flow was $18 million.
The company did not repurchase any share in the quarter under review. However, during the nine months ended Sep 30, 2017, the company repurchased $350 million of its common stock.
Disappointing Guidance
NCR reduced revenue and earnings outlook for 2017. Additionally, the fourth-quarter guidance was disappointing.
For the year, the company now anticipates revenues in the range of $6.475-$6.525 billion, lower than previous guided range of $6.63-$6.75 billion. The lower-than-expected revenue guidance was primarily due to weakness in ATM market.
Non-GAAP earnings per share are now anticipated in the range of $3.10-$3.20, lower than the previous guided range of $3.32-$3.42 per share. The decrease in earnings per share was mainly due to lower ATM hardware and attached software licenses.
The company now expects operating cash flow in the range of $745-$775 million (previous guidance $805-$830 million). Moreover, free cash flow is now anticipated to be between $440 million and $470 million (previous guidance $500 million and $525 million). The decrease in the cash flow outlook was mainly due to effect of lower revenues.
Coming to the fourth-quarter outlook, NCR expects revenues in the range of $1.74-$1.79 billion.
The company expects non-GAAP earnings per share for the third quarter in the range of 83-93 cents.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the past month as none of them issued any earnings estimate revisions.
VGM Scores
At this time, the stock has a subpar Growth Score of D, a grade with the same score on the momentum front. Meanwhile, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is solely suitable for value investors.
Outlook
Shares of the company have a Zacks Rank #4 (Sell). We are looking for a below average return from the stock in the next few months.
Image: Bigstock
Why Is NCR Corp (NCR) Down 17.7% Since the Last Earnings Report?
It has been about a month since the last earnings report for NCR Corporation . Shares have lost about 17.7% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
NCR Beats on Q3 Earnings, Revenues Miss, Lowers '17 View
NCR reported mixed results for third-quarter 2017. The company’s non-GAAP earnings (excluding restructuring, acquisition-related expenses and other one-time items) from continuing operations of 93 cents per share surpassed the Zacks Consensus Estimate of 90 cents and surged 6.9% year over year.
Quarterly earnings also came toward the higher end of the company’s guided range of 88-93 cents. The robust bottom-line performance can primarily be attributed to efficient cost management and a lower share count.
Revenues
The company’s revenues of $1.663 billion missed the Zacks Consensus Estimate of $1.683 billion and decreased a marginal 0.8% on a year-over-year basis. The softness in revenues during the quarter was primarily impacted by weakness in the ATM business.
Per the company, “ATM orders continue to be negatively impacted by large customer delays in spending in North America, weakness in India, the Middle East and Africa, and the upcoming Windows 10 conversion.”
The company’s product revenues came in at $657 million, down 7.2% from the year-ago-quarter. However, service revenues increased 3.8% year over year and came in at $1.006 billion.
During second-quarter 2016, NCR modified reportable segments to reflect changes in its structure. The new reportable segments are Software, Services and Hardware segments.
The company’s Software revenues on a reported basis were up 2% to $476 million. The increase was primarily due to a 5%, 6% and 3% increase in Cloud, Professional Services and Software maintenance revenues, respectively. Nonetheless, Software license was down 12%. Notably, net ACV during the quarter increased 37% and came in at $16 million in the quarter.
Services revenues increased 3% to $609 million on a reported and constant currency basis. The increase was primarily due to hardware maintenance growth.
Hardware revenues however decreased 6% year over year on a reported basis to $578 million.
The segment revenues from ATM and SCO declined 16% and 24%, respectively, which negatively impacted the overall hardware revenues. However, revenues from POS surged 19%, while that of IPS remained flat on a year-over-year basis. The increase POS revenues were primarily driven by new products rollout and replacements. On a constant currency basis, Hardware revenues decreased 7%.
Margins
Non-GAAP gross profit for the quarter decreased 1% and came in at $486 million, primarily due weakness in ATM business and unfavorable revenue mix. Further, the non-GAAP gross margin decreased 10 basis points (bps) to 29.2%, mainly due to lower software license revenue and reduced hardware margins.
Income from operations on a non-GAAP basis was $235 million, up from $230 million a year ago. Also, operating margin expanded 40 bps on a year-over-year basis, primarily due to strong cost control measures, lower employee compensation expenses as well as better productivity.
Non-GAAP operating expenses during the quarter came in at $251 million, reflecting an increase from $261 million in the year-ago quarter.
Non-GAAP net income from continuing operations was $143 million compared with $135 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 $405 million, up from $377 million in the previous quarter. Receivables were $1.41 billion compared with $1.32 billion in the previous quarter.
However, NCR has a highly-leveraged balance sheet. The company ended the quarter with $2.98 billion of long-term debt in its book as compared with $3 billion reported in the previous quarter.
In the third quarter, the company generated operating cash flow of $133 million and free cash flow was $18 million.
The company did not repurchase any share in the quarter under review. However, during the nine months ended Sep 30, 2017, the company repurchased $350 million of its common stock.
Disappointing Guidance
NCR reduced revenue and earnings outlook for 2017. Additionally, the fourth-quarter guidance was disappointing.
For the year, the company now anticipates revenues in the range of $6.475-$6.525 billion, lower than previous guided range of $6.63-$6.75 billion. The lower-than-expected revenue guidance was primarily due to weakness in ATM market.
Non-GAAP earnings per share are now anticipated in the range of $3.10-$3.20, lower than the previous guided range of $3.32-$3.42 per share. The decrease in earnings per share was mainly due to lower ATM hardware and attached software licenses.
The company now expects operating cash flow in the range of $745-$775 million (previous guidance $805-$830 million). Moreover, free cash flow is now anticipated to be between $440 million and $470 million (previous guidance $500 million and $525 million). The decrease in the cash flow outlook was mainly due to effect of lower revenues.
Coming to the fourth-quarter outlook, NCR expects revenues in the range of $1.74-$1.79 billion.
The company expects non-GAAP earnings per share for the third quarter in the range of 83-93 cents.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the past month as none of them issued any earnings estimate revisions.
VGM Scores
At this time, the stock has a subpar Growth Score of D, a grade with the same score on the momentum front. Meanwhile, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is solely suitable for value investors.
Outlook
Shares of the company have a Zacks Rank #4 (Sell). We are looking for a below average return from the stock in the next few months.