NCR Tops Q2 Earnings Estimates, Lags Revenues, Cuts ’18 View

NCR Corporation’s NCR second-quarter fiscal 2018 results were mixed, wherein earnings outpaced the Zacks Consensus Estimate but revenues missed the same.

The company’s non-GAAP earnings 65 cents per share surpassed the Zacks Consensus Estimate of 63 cents. The reported figure was on par with the high end of management’s guided range of 60-65 cents. On a year-over-year basis, however, the figure decreased 18.7%.

The company’s revenues of $1.54 billion not only lagged the Zacks Consensus Estimate of $1.59 billion, but also came in 3.5% lower year over year.

The shares of the company have underperformed the industry’s decline of 2.4% with an average loss of 17%.

Segmental Details

The company’s Software revenues, on a year-over-year basis, were up 1.3% to $470 million. The upswing was primarily due to a 7%, 2% and 2.2% increase in Cloud, Professional and Software Maintenance Services revenues, respectively. However, 12% decline in Software License revenues, due to lower hardware sale and unattached software license revenues was a dampener.

Services revenues climbed 3.7% to $610 million year over year driven by the company’s hardware maintenance and implementation services growth combined with continued momentum in managed service offerings.

Hardware revenues, however, slipped 15.5% year over year to $457 million. Segment revenues from ATM, POS and IPS declined 21%, 16% and 100%, respectively, which negatively impacted the overall hardware revenues.

The decline in ATM revenues was due to supply constraints owing to the company’s transition from 30 Series to 80 Series product line. Moreover, several large customer roll outs in the year-ago quarter led to a tough year-over-year comparison for POS sales.

However, revenues from Self-Checkout (SCO) jumped 3% to $99 million.

Margins

Non-GAAP gross profit of $449 million was down 6% year over year. Non-GAAP gross margin shrunk 70 basis points (bps) from the year-ago period to 29.2% due to reduced software license revenues and lower Hardware margins.

Cost of $41 million incurred due to restructuring and transformation initiatives was a major headwind for the gross margin as well.

Non-GAAP operating expenses during the quarter came in at $284 million, reflecting an increase of 7.2% from the year-ago quarter, mainly due to continued investments in the business in order to improve execution.

Non-GAAP operating income of $165 million fell 22.2%year over year,

Balance Sheet & Other Financial Details

NCR exited the quarter with cash and cash equivalents of approximately $343 million, down from $348 million reported in the previous quarter.

The company ended the quarter with $2.95 billion of long-term debt, lower than $3.04 billion reported in the previous quarter.

During the quarter, the company repurchased approximately $45 million of its common stock.

Recently the company’s board authorized an additional $200 million of share repurchases.

Outlook

The company lowered its outlook for fiscal 2018 to accommodate the execution challenges of product introductions, which continue to adversely impact its revenues and costs.

Non-GAAP earnings per share are now expected to be between $2.55 and $2.75 compared with the previous guidance of $3.30-$3.45.

NCR expects revenues to fall 1% to 3%. This drastic reduction in revenue guidance from a previously projected growth of 0-3% is due to the negative impact of forex on revenues by roughly $90 million from the last reported quarter.

The company anticipates hardware to be in the low end of earlier projection of flat to down mid-single digits. ATM revenue is expected to remain flat due to strong backlog. Software is now projected to be flat versus previous guidance of low to mid-single digits growth. Lower hardware sales are also an overhang on software license revenues.

Management now expects cloud revenue to grow 6-7%, compared with prior expectation of 10%. This is because bookings are taking longer to convert to revenue and net ACV is lower than expect. Services revenues are expected to be up low single-digits.

Moreover, the company expects to incur high costs and expenses in the third-quarter for addressing supply and execution challenges.

Zacks Rank and Stocks to Consider

NCR currently carries a Zacks Rank #3 (Hold).

A few stocks worth considering in the broader Computer and Technology sector are Adobe ADBE, Qualys, Inc. QLYS and Verint VRNT, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for Adobe, Qualys and Verint is projected to be 16.20%, 8% and 10%, respectively.

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