NCR Corp. (NCR) posted decent first quarter 2011 earnings per share of 27 cents, beating the Zacks Consensus Estimate of 23 cents.
Revenue
NCR Corp. reported first quarter 2011 revenue of $1.10 billion, up 6.0% from $1.03 billion in the year-ago quarter. The reported revenue surpassed the Zacks Consensus Estimate of $1.09 billion. The company witnessed growth in global orders, which increased 8.0%, while order backlog at quarter end was up in the mid-teens versus the prior-year period.
Financial Services segment was up 3.0% in first quarter of 2011, with good performance across key regions including BICMEA (Brazil, India, China, Middle East and Africa) and CLA (Caribbean Latin America region).
Retail and Hospitality segment revenues grew 5.0% compared with the year-ago quarter, fuelled by ongoing roll outs of the company’s self-checkout and point-of-sale solutions.The company witnessed declining results in Japan, resulting from the natural disaster that occurred in March.
The company boasts a global presence and experienced varied order growth in different regions, including North America, BICMEA and Europe. In Europe, orders grew in the mid-single digits, primarily as a result of order growth in the U.K., Italy and Russia.
In BICMEA, the order growth was primarily led by higher demand in Brazil and China. In North America, the company witnessed improvement in business volume among the U.S. regional banks as orders surged 75.0% from the comparable quarter last year.
Operating Results
Gross margin in the quarter was 19.2% versus 18.6% in the year-ago quarter. The improvement in gross margin resulted from higher product sales, favorable mix and the successful implementation of cost reduction initiatives, which resulted in sales growth exceeding the growth in cost of production.
NCR reported first-quarter income from continuing operations (attributable to NCR) of $10.0 million or 6 cents per diluted share compared with a loss of $19.0 million or 12 cents in the year-ago quarter.
Excluding special items like impairment and pension expense and headquarter relocation expense, non-GAAP income from continuing operations was 27 cents per diluted share compared with 15 cents in the prior-year quarter.
Balance Sheet & Cash Flow
NCR Corp. generated cash of $44.0 million from operating activities during the first quarter compared with $22.0 million in the year-ago quarter. Net capital expenditures of $39.0 million in the first quarter of 2011 decreased from $51.0 million reported in the year-ago period.
This can be attributed to a reduction in capital expenditures in the Entertainment business. NCR ended the quarter with $480.0 million in cash and cash equivalents, up from $496.0 million in the previous quarter.
Guidance
The company expects full-year 2011 revenues to increase in the range of 5.0% to 7.0% compared with the 2010 levels. GAAP diluted earnings per share is expected to be in the range of 77 to 84 cents and non-GAAP diluted earnings per share, excluding pension expense and special items, to be in the range of $1.70 to $1.77 per diluted share.
Management expects second quarter 2011 non-pension operating income (NPOI) in the range of $95.0 million to $100.0 million, compared with $88.0 million in the year-ago quarter. The company anticipates second quarter 2011 effective tax rate in the range of 30% to 35%.
Our Take
Revenues improved across all regions, especially in BICMEA, where sales were driven by higher customer wins across all sectors. However, overall sales improved due to a recovery in macroeconomic conditions particularly in retail, financial services and the hospitality industries. We are encouraged by the second quarter guidance, and believe that the company is well positioned to deliver solid momentum across all its businesses.
We appreciate the company’s market leadership, successful acquisitions, product introductions and continued customer wins. However, we are a bit concerned about the company’s Japan business, which has been hit by the recent natural calamity.
NCR has a Zacks #2 Rank, which implies a short-term Buy rating on the stock.
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