Shares of NCR Corp. (NCR) were down approximately 2% on Feb 10 following tepid fiscal 2015 earnings and revenue guidance. Also, lower-than-expected fourth-quarter 2014 revenues impacted share price.
Despite the fall, the company reported non-GAAP earnings (excluding acquisition-related costs, amortization of intangibles and other one-time items) of 88 cents per share, which came ahead of the Zacks Consensus Estimate of 80 cents. Also, earnings increased from 83 cents reported in the year-ago quarter.
Revenues
Although NCR’s reported revenues increased 5.9% on a year over year basis to $1.768 billion, it marginally lagged the Zacks Consensus Estimate of $1.777 billion. The year-over-year improvement in revenues was mainly due to a 32% increase in software revenues and a whopping 231% increase in Cloud revenues (previously known as SaaS revenues).
The year-over-year increase in software-related revenues was primarily due to the Digital Insight acquisition. Moreover, year-over-year improvements in its Financial Services segment positively impacted total revenue in the quarter. Hardware revenues were approximately flat on a year over year basis and came in at $714 million.
Revenues from the Financial Services segment were $968 million, up 13.6% from the year-ago quarter.The upside was primarily attributed to Branch Transformation and higher mix of software-related revenues. Better-than-expected growth in North America, Brazil, Western Europe and MEA (Middle East and Africa) also positively impacted revenues. Digital Insight Corp. contributed $93 million to quarterly revenues.
In the Retail Solutions segment, revenues came in at $526 million, down 1.9%, primarily due to lower-than-expected orders from North America coupled with delays in customer rollouts. The Hospitality segment also showed a 2.3% decrease in revenues impacted by lower-than-expected spends by certain worldwide service restaurants. Nonetheless, the company’s focus on North America’s small and medium sized business (SMB) market (7% year over year revenue growth) was a positive in the quarter.
Emerging Industries’ revenues decreased 3.8% on a year over year basis to $102 million, primarily due to flat Telecom & Technology revenues and a decline in revenues from Travel. However, higher adoption of NCR Silver for the Small Business was a positive in the quarter.
Operating Results
Non-GAAP gross margin in the quarter came in at 30.2% compared with28.9% in the year-ago quarter, primarily due to favorable mix of software revenues.
Non-GAAP operating expenses increased 7.6% on a year-over-year basis to $283 million due to an increase in selling, general and administrative expenses (up 6.7% on a year over year basis) and research and development expenses (up 11.3% on a year over year basis). Moreover, as a percentage of revenues, operating expenses increased 26 basis points from the year-ago quarter to 16%.
Non-GAAP operating income increased 13.6% from the year-ago quarter to $251 million. Operating margin was 14.2% versus 13.2% in the year-ago quarter. Margin expansion was primarily attributed to better-than-expected software revenue mix.
Non-GAAP net income (excluding acquisition-related costs, amortization of intangibles and other one-time items) from continuing operations was $151 million in the quarter compared with $142 million in the year-ago quarter.
Balance Sheet & Cash Flow
NCR has a highly leveraged balance sheet. NCR exited the fourth quarter with cash and cash equivalents of approximately $511 million, up from $424 million in the previous quarter. Receivables were $1.40 billion versus $1.45 billion in the previous quarter. The company has a long-term debt of $3.57 billion compared with $3.66 billion in the previous quarter. Moreover, net debt came in at $3.15 billion compared with $3.24 billion in the previous quarter.
Net cash provided by operating activities was $289 million compared with $124 million in the previous quarter. Free cash flow in the quarter came in at $229 million.
Guidance
For the first quarter of 2015, NCR expects non-pension operating income (NPOI) to be in the range of $140 million to $150 million. Effective income tax rate is expected to be approximately 23%.
NCR provided forecast for fiscal 2015. NCR now expects revenues to be in the range of $6.525 billion-$6.675 billion. The Zacks Consensus Estimate is pegged at $6.845 billion.
Moreover, NCR expects its full-year 2015 non-pension operating income (NPOI) to be in the range of $830 million to $870 million. Non-GAAP earnings per share are expected to be in the range of $2.60 to $2.80 (mid-point $2.70 per share. The Zacks Consensus Estimate is pegged at $2.96.
Our Take
NCR reported mixedfourth-quarter 2014 results, wherein the bottom line surpassed the Zacks Consensus Estimate but the top line missed the same. The company saw margin expansion aided by higher mix of software business. However, NCR provided a tepid fiscal 2015 guidance, anticipating lower revenue growth across its business segments, especially its Emerging Industries.
Nevertheless, NCR’s growing exposure into ATM and self-service kiosk spaces is encouraging, given tremendous growth prospects in the respective markets. Continuous product launches, growing popularity of its self-service offerings and synergies from acquisitions are catalysts. Continuous deal wins also remain NCR’s strong point. Moreover, NCR has also strengthened its position in the point of sale (POS) market through the integration of Radiant Systems.
However, softness in the ATM business in mature markets, competition from Diebold, Incorporated (DBD) and Hewlett-Packard (HPQ), and a high debt burden are concerns.
Currently, NCR Corp. has a Zacks Rank #3 (Hold).
Alternatively, investors can consider Rambus Inc. (RMBS), a better-ranked technology stock carrying a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment