NCR Corp. (NCR) posted decent second quarter 2011 earnings per share of 46 cents, beating the Zacks Consensus Estimate of 42 cents.
Revenue
NCR Corp. reported revenues of $1.31 billion in the second quarter, up 12.0% from $1.17 billion in the year-ago quarter. In the reported quarter, switching revenue grew 33.0% year over year while routing revenue witnessed a year-over-year upside of 21.0%.
These core businesses are gaining momentum ahead of new product launches, which are expected to work in favour of the company. The company continues to grow at the rate of 18.0% during the first half of the year, almost at par with the company’s multi-year growth target.
Financial Services segment increased 15.0% in first quarter of 2011, driven by solid performance across key regions including BICMEA (Brazil, India, China, Middle East and Africa), North America, Europe and Caribbean and Latin America (CLA).
Retail and Hospitality segment revenues grew 3.0% from the year-ago quarter, driven largely by growth in the BICMEA, North America and South Asia Pacific regions. The second quarter year-over-year revenue comparison included a benefit of 5 percentage point related to foreign currency translation.
Operating Results
Gross margin in the quarter was 20.6% versus 20.5% in the year-ago quarter. The improvement in gross margin was due to higher product sales, favorable mix and the successful implementation of cost-reduction initiatives, which resulted in higher sales growth.
NCR reported second quarter income from continuing operations (attributable to NCR) of $33.0 million or 21 cents per diluted share compared with $31.0 million or 19 cents per diluted share in the year-ago quarter.
Excluding special items like impairment and pension expense and headquarter relocation expense, non-GAAP income from continuing operations was 46 cents per diluted share compared with 35 cents per diluted share in the prior-year quarter.
Balance Sheet & Cash Flow
Net cash provided by operating activities was $64.0 million during the second quarter of 2011 compared with $87.0 million in the year-ago period. Cash from operating activities in the second quarter was negatively impacted by higher working capital investment arising from robust revenues in the second quarter of 2011.
NCR ended the second quarter of 2011 with $457.0 million in cash and cash equivalents compared with $480.0 million in the prior quarter. In the quarter, NCR had a debt balance of $11 million.
Guidance
The company expects fiscal 2011 revenues to increase in the range of 6.0% to 8.0%. GAAP diluted earnings per share is expected in the range of 79 to 86 cents and non-GAAP diluted earnings per share, excluding pension expense and special items, in the range of $1.73 to $1.80 per diluted share.
Our Take
NCR reported decent second quarter results, with revenues improving across all regions, especially in BICMEA (Brazil, India, China, Middle East and Africa), where sales were driven by higher customer wins. However, overall sales improved due to a recovery in core operations and new product launches particularly in retail, financial services and the hospitality industries.
We are encouraged by the fiscal year 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. Moreover, the restructuring initiatives have begun impacting the results.
The company holds a Zacks #2 Rank, implying a short-term Buy rating.
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