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Why Is NCR (NCR) Down 40.6% Since Last Earnings Report?

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It has been about a month since the last earnings report for NCR (NCR - Free Report) . Shares have lost about 40.6% 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 drivers.

NCR Q4 Earnings and Revenues Surpass Estimates

NCR’s fourth-quarter 2019 non-GAAP earnings of 85 cents per share surpassed the Zacks Consensus Estimate by 1.2%. On a year-over-year basis, the metric increased 1.2%.

The company’s revenues of $1.89 billion topped the consensus estimate of $1.73 billion. The figure increased 5% year over year on a reported basis and 6% in constant currency (CC).

Notably, the company completed the acquisition of Zynstra to bolster its next-generation store architecture.

Growth across each of the segments drove the top line. However, foreign currency fluctuations were an overhang.

Quarter Details

Banking revenues remained flat on a reported basis and increased 2% in CC, driven by strong demand for software and service solutions despite a partial shift of banking software to recurring revenues. Notably, NCR signed several deals in banking software during the quarter on a recurring basis.

For the year, banking revenues grew 13% year over year, driven by 33% growth in ATM hardware sales.

Retail revenues rose 10% on both reported basis and CC, driven by revenue contribution from JetPay and solid traction in self-checkout solution. Higher hardware maintenance activity and several new managed service contracts benefited the segment.

Hospitality revenues increased 5% on a reported basis as well as in CC, driven by higher cloud revenues from NCR Silver and Aloha products, payment revenues from the JetPay acquisition, and rise in point-of-sale revenues.

The company’s Digital Banking Solution witnessed solid growth. During the quarter, it signed 52 recurring contract deals that would have been an upfront payment in the past. The acquisition of D3 Technology in the prior quarter drove revenues for the business.

In Digital First Restaurant, NCR witnessed early success in Aloha Essentials — its bundle of software, services, hardware and payments. Notably, 80% of all SMB Aloha sites sold through its direct sales channel were sold as an Aloha Essentials subscription bundle.

Digital Connected Services continued to witness an expansion of the customer base.

Margins

Non-GAAP gross profit of $541 million was up 9.9% year over year. Non-GAAP gross margin expanded 120 basis points to 28.7%. Non-GAAP operating expenses were $324 million, up 15.3% due to higher employee-related and real estate costs.

Non-GAAP operating income of $217 million inched up 1.4% year over year.

Operating income for Banking grew 14% year over year, driven by a favorable mix for ATMs, and higher software and service revenues.

Operating income for the Retail segment rose 21% year over year, primarily driven by improved hardware profitability.

Operating income of the Hospitality segment decreased 45% due to difficult year over year comparison, pertaining to the presence of several large customer installations in the prior-year quarter. Also, continued investment in services support and payments were an overhang. However, improved hardware profitability provided relief.

Other Financial Details

Free cash flow was $296 million as compared with $57 million in the prior quarter.

Net cash provided by operating activities was $402 million.

2019 Highlights

For 2019, revenues increased 8% on a reported basis and 10% in CC. Banking, Retail and Hospitality revenues rose 10%, 6% and 3%, respectively, on a reported basis.

Non-GAAP earnings of $2.81 per share were up 7.3% year over year.

Outlook

For 2020, the company anticipates 0-1% year-over-year revenue growth.

Non-GAAP earnings per share are expected to be between $2.75 and $2.85.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -33.09% due to these changes.

VGM Scores

Currently, NCR has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

NCR has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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