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NCR Beats on Q4 Earnings, Lags Revenues; Guidance Weak

NCR Corporation NCR reported mixed fourth-quarter 2015 results wherein earnings per share surpassed the Zacks Consensus Estimate but revenues fell short of the same. The company’s non-GAAP earnings (excluding acquisition-related costs, amortization of intangibles and other one-time items) of 92 cents beat our estimate of 87 cents and increased 4.5% year over year.
 

NCR Corporation (NCR) Street EPS & Surprise Percent - Last 5 Quarters | FindTheCompany

Quarter in Detail

NCR’s revenues of $1.680 billion missed the Zacks Consensus Estimate of $1.724 million and declined 4.9% on a year-over-year basis. However, on a constant currency basis, revenues were flat year over year.

Product revenues were down 12.1% on year-over-year basis whereas service revenues went up 1.2% during the quarter. The company’s total software revenue on a reported basis was down 4%. Hardware revenues declined 13% on a year-over-year basis whereas other revenues increased 2%.

Segment-wise, NCR’s retail solutions and hospitality grew 0.4% and 9.9%, respectively. Emerging industries revenues were flat on a year-over-year basis, but revenues from financial services went down 11.1% on a year-over-year basis.

The year-over-year increase in the retail solutions division was primarily backed by growth in North America and Europe. Hospitality industries revenues increased year over year primarily due to higher software-related revenues. Revenues at emerging industries were positively impacted by the Telecom & Technology business.

Non-GAAP gross margin came in at 30.7%, up 51 basis points (bps) from the year-ago quarter, mainly supported by favorable mix of software-related revenues.

Income from operations on a non-GAAP basis was $264 million, up from $251 million a year ago. Operating margin, as a percentage of revenues, improved 151 bps on a year-over-year basis, primarily driven by higher gross margin and lower cost of sales.

Non-GAAP net income from continuing operations was $157 million compared with $151 million in the year-ago quarter.

Balance Sheet & Cash Flow

NCR has a highly leveraged balance sheet. The ATM and POS manufacturer exited the quarter with cash and cash equivalents of approximately $328 million, up from $303 million in the previous quarter. Receivables were $1.25 billion compared with $1.42 billion in the previous quarter. The company has a long-term debt of $3.24 billion during the quarter.

Net cash provided by operating activities was $265 million compared with $170 million in the year-ago quarter. Free cash flow came in at $184 million, up from the year-ago period level of $106 million.

Guidance

NCR provided full-year 2016 guidance. The company expects revenue to be in the range of $6.1 billion–$6.2 billion (mid-point $6.15 billion). The Zacks Consensus Estimate is pegged higher at $6.593 billion.

The company expects non-GAAP earnings per share for full-year 2016 to range between $2.72 and $2.82 (mid-point $2.77 per share). The Zacks Consensus Estimate is pegged at $2.90.

Coming to the first-quarter outlook, NCR expects revenues in the range of $1.440 billion to $1.450 billion. The Zacks Consensus Estimate stands at $1.507 billion.

The company expects non-GAAP earnings per share for first quarter to range between 30 cents and 35 cents (mid-point 32.5 cents). The Zacks Consensus Estimate is pegged at 52 cents.

Our Take

NCR reported mixed fourth-quarter 2015 results wherein the bottom line topped the Zacks Consensus Estimate but the top line missed the same. The company provided a tepid first quarter and full-year 2016 guidance, primarily affected by unfavorable currency exchange rates.

However, NCR’s growing exposure in the ATM and self-service kiosk spaces is encouraging, given the tremendous growth prospects in the respective markets. Continuous product launches, growing popularity of its self-service offerings and synergies from acquisitions are the catalysts. Continuous deal wins are the other growth drivers. Moreover, NCR strengthened its position in the POS market through the integration of Radiant Systems.

However, softness in the ATM business in mature markets, competition from Diebold Incorporated DBD and HP Inc. HPQ, and a high debt burden remain concerns.

Currently, NCR has a Zacks Rank #3 (Hold).

However, a better-ranked stock in the wider technology space is FormFactor Inc. FORM carrying a Zacks Rank #1 (Strong Buy).

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