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NCR (NCR) Down 11.9% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for NCR (NCR - Free Report) . Shares have lost about 11.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is NCR due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

NCR Reports Q2 Results

NCR Corporation (NCR - Free Report) second-quarter 2019 non-GAAP earnings of 76 cents per share surpassed the Zacks Consensus Estimate of 66 cents. On a year-over-year basis, the figure increased 17%.

The company’s revenues of $1.71 billion topped the consensus estimate of $1.58 billion. The figure increased 11% year over year on a reported basis and 14% in constant currency (CC). Strong performance of the banking segment due to growth in ATM orders drove the top line.

Quarter Details

Banking revenues increased 20% on a reported basis and 23% in CC, primarily due to 78% CC growth in ATM revenues driven by higher backlog conversion and strong order rates.

Software and services related to ATMs contributed considerably to the year-over-year increase in Banking revenues, with growth in hardware maintenance backlog and a future annuity stream from large customer wins in the quarter.

Strength in ATM replacement cycle, particularly in North America and Europe, and upgrades on Windows 10, were significant revenue drivers for the segment.

Retail revenues fell 4% on a reported basis and grew 6% in CC, driven by the acquisition of JetPay and solid traction in self-checkout solution. Revenue contribution from the buyout of JetPay, and strength in self-checkout revenues and hardware maintenance activity in North America customers benefited the retail segment.

Hospitality revenues increased 2% on a reported basis and 3% in CC, driven by higher cloud revenues from NCR Silver and Aloha products, and payments revenues from the JetPay acquisition.

The company’s Digital Banking Solution witnessed organic growth. During the second quarter, it shifted eight products from perpetual licensing to recurring, in line with its strategy to become a recurring software and services-led company.

In Digital First Restaurant, NCR recently launched a bundle of software, services, hardware and payments called Aloha Essentials.

Digital Connected Services continued to witness an expansion of customer base. NCR’s Digital Connected Services were recently selected by a leading top U.S. bank for more than 12,000 ATMs.

Moreover, in Digital Small Business Essentials, the company launched all in one point-of-sale solution — NCR Silver One — which integrates payment processing with NCR Silver in a monthly subscription package.

Margins

Non-GAAP gross profit of $487 million was up 8.5% year over year.  Non-GAAP gross margin contracted 70 basis points to 28.5%.

Non-GAAP operating expenses were $295 million, reflecting an increase of 3.9% due to higher employee-related and real estate costs.

Non-GAAP operating income of $192 million increased 16.4% year over year.

Operating income of the Banking segment grew 47% in CC, driven by a favorable mix for ATMs, and higher software margin related to the ATMs and lower third-party content on non-ATM software sales.

Operating income of the Retail segment rose 14% in CC primarily driven by services productivity improvement initiatives, partially offset by JetPay-related expenses.

Operating income of the Hospitality segment decreased 36% in CC due to the decline in hardware revenues and continued investment in customer satisfaction efforts.

Balance Sheet & Other Financial Details

NCR exited the quarter with cash and cash equivalents of approximately $335 million, down from $414 million reported in the previous quarter.

The company ended the second quarter with $2.92 billion of long-term debt compared with $2.91 billion reported in the first quarter.

Free cash flow was $9 million against outflow of $87 million in the prior quarter.

NCR did not repurchase additional shares in the quarter.

Outlook

The company raised full-year 2019 revenue guidance. It now expects 3-4% year-over-year revenue growth, up from previously forecasted rise of 1-2%.

NCR reiterated outlook for full-year 2019 earnings, net income and cash flow. Non-GAAP earnings per share are expected to be between $2.75 and $2.85.

Net income is expected to be $290 million to $305 million and adjusted EBITDA is projected within $1.04-$1.08 billion.

Cash flow from operations is estimated to be between $705 million and $730 million and free cash flow is likely to be $300-$350 million.

The backlog in ATM business is expected to lead to another strong quarter for the Banking segment in the third quarter.

NCR continues to focus on cost saving initiatives, which is expected to result in savings of about $100 million in 2019.

NCR recently acquired D3 Technology, which is likely to boost the Digital Banking Solutions segment.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -9.19% due to these changes.

VGM Scores

Currently, NCR has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, 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.

Outlook

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.


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