A month has gone by since the last earnings report for NCR Corporation (NCR - Free Report) . Shares have added about 1.2% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is NCR due for a pullback? 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 Q4 Results
NCR reported better-than-expected results for fourth-quarter 2017. The company’s non-GAAP earnings from continuing operations of 92 cents per share surpassed the Zacks Consensus Estimate of 86 cents. The figure was toward the higher end of the company’s guided range of 83–93 cents. However, it declined 14% from the year-ago quarter.
Management was optimistic about its increased operational efficiency, which resulted in margin expansion and boosted the bottom line.
The company’s revenues of $1.782 billion came ahead of the Zacks Consensus Estimate of $1.744 billion but decreased a marginal 1.1% on a year-over-year basis.
The company’s Software revenues on a reported basis were up 1% to $508 million. The increase was primarily due to a 6% and 3% increase in Cloud and Professional Services, respectively, which was partially offset by an 8% decline in Software License revenues.
Services revenues increased 4% to $619 million on a reported basis. The increase was primarily attributable to “channel transformation” initiatives, which resulted in growth of hardware maintenance and implementation services.
Hardware revenues, however, decreased 7% year over year on a reported basis to $655 million.
Segment revenues from ATM, SCO and IPS declined 21%, 1% and 63%, respectively, which negatively impacted the overall hardware revenues. The decline in ATM revenues was due to low backlog toward the beginning of the quarter.
However, revenues from POS surged 23%, which slightly offset the decline of the other three segments. The increase in POS revenues was primarily attributable to the introduction of products and replacement of the existing products.
Non-GAAP gross profit for the quarter decreased 0.6% year over year and came in at $527 million, primarily due to weakness in the ATM business and introduction of products. Nevertheless, non-GAAP gross margin increased 20 basis points (bps) to 29.6%, owing to improved productivity in the Services segment.
Non-GAAP operating expenses during the quarter came in at $284 million, reflecting an increase from $266 million in the year-ago quarter, primarily due to increased sales investments as part of the company’s focus on expansion of its strategic offers.
Increased expenses resulted in a decrease in income from operations, which on a non-GAAP basis, was $243 million, down from $264 million a year ago. Also, operating margin contracted around 100 bps on a year-over-year basis.
Non-GAAP net income from continuing operations was $142 million compared with $168 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 $537 million, up from $405 million in the previous quarter. Receivables were $136 million.
However, NCR has a highly-leveraged balance sheet. The company ended the quarter with $2.94 billion of long-term debt in its book compared with $2.93 billion reported in the previous quarter.
In the fourth quarter, operating cash flow was $484 million and free cash flow was $402 million.
The company did not repurchase any shares in the quarter under review. However, during fiscal 2017, the company repurchased $350 million of its common stock.
Management was positive about the 46% year-over-year increase of the company’s net annual contract value (ACV) which specifies the net bookings for cloud revenue. This was encouraging as it is a testament to the fact that NCR is “on track to approach double-digit top line cloud growth in 2018.”
Notably, non-GAAP EPS for fiscal 2017 came in at $3.20, showcasing an increase of 6% from the previous fiscal.
For fiscal 2018, the company anticipates revenues to be flat to up 3%. Non-GAAP earnings per share are expected to be in the range of $3.30-$3.45.
Per the new US tax reforms, the company expects effective tax rate for 2018 to be 24%. The company expects free cash flow for fiscal 2018 to be around 90% of the non-GAAP net income.
Management expects to repurchase shares worth $300 million in 2018 backed by a strong free cash flow.
Coming to the first-quarter outlook, NCR expects revenues in the range of $1.74-$1.79 billion. The company expects non-GAAP earnings per share for the first-quarter quarter in the range of 41-47 cents.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been two revisions lower for the current quarter. In the past month, the consensus estimate has shifted downward by 21.1% due to these changes.
At this time, NCR has a nice Growth Score of B, though it is lagging a lot on the momentum front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. 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 more suitable for value investors than growth investors.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, NCR has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.