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NCR Beats on Q3 Earnings, Revenues Miss, Lowers '17 View
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NCR Corporation reported mixed results for third-quarter 2017. The company’s non-GAAP earnings (excluding restructuring, acquisition-related expenses and other one-time items) from continuing operations of 93 cents per share surpassed the Zacks Consensus Estimate of 90 cents and surged 6.9% year over year.
Quarterly earnings also came toward the higher end of the company’s guided range of 88-93 cents. The robust bottom-line performancecan primarily be attributed toefficient cost management and a lower share count.
Notably, the stock has outperformed the industry in the last year. NCR’s shares have returned 21.8% against the industry’s decline of 1.4%.
Revenues
The company’s revenues of $1.663 billion missed the Zacks Consensus Estimate of $1.683 billion and decreased a marginal 0.8% on a year-over-year basis. The softness in revenues during the quarter was primarily impacted by weakness in the ATM business.
Per the company, “ATM orders continue to be negatively impacted by large customer delays in spending in North America, weakness in India, the Middle East and Africa, and the upcoming Windows 10 conversion.”
The company’s product revenues came in at $657 million, down 7.2% from the year-ago-quarter. However, service revenues increased 3.8% year over year and came in at $1.006 billion.
During second-quarter 2016, NCR modified reportable segments to reflect changes in its structure. The new reportable segments are Software, Services and Hardware segments.
The company’s Software revenues on a reported basis were up 2% to $476 million. The increase was primarily due to a 5%, 6% and 3% increase in Cloud, Professional Services and Software maintenance revenues, respectively. Nonetheless, Software license was down 12%. Notably, net ACV during the quarter increased 37% and came in at $16 million in the quarter.
Services revenues increased 3% to $609 million on a reported and constant currency basis. The increase was primarily due to hardware maintenance growth.
Hardware revenues however decreased 6% year over year on a reported basis to $578 million.
The segment revenues from ATM and SCO declined 16% and 24%, respectively, which negatively impacted the overall hardware revenues. However, revenues from POS surged 19%, while that of IPS remained flat on a year-over-year basis. The increase POS revenues were primarily owingto new products rollout and replacements. On a constant currency basis, Hardware revenues decreased 7%.
Margins
Non-GAAP gross profit for the quarter decreased 1% and came in at $486 million, primarily due weakness in ATM business and unfavorable revenue mix. Further, the non-GAAP gross margin decreased 10 basis points (bps) to 29.2%, mainlydue to lower software license revenue and reduced hardware margins.
Income from operations on a non-GAAP basis was $235 million, up from $230 million a year ago. Also, operating margin expanded 40 bps on a year-over-year basis, primarily due to strong cost control measures, lower employee compensation expenses as well as better productivity.
Non-GAAP operating expenses during the quarter came in at $251 million, reflecting an increase from $261 million in the year-ago quarter.
Non-GAAP net income from continuing operations was $143 million compared with $135 million in the year-ago quarter.
Balance Sheet & Cash Flow
The ATM and POS manufacturer exited the quarter with cash and cash equivalents of approximately $405 million, up from $377 million in the previous quarter. Receivables were $1.41 billion compared with $1.32 billion in the previous quarter.
However, NCR has a highly-leveraged balance sheet. The company ended the quarter with $2.98 billion of long-term debt in its book as compared with$3 billion reported in the previous quarter.
In the third quarter, the company generated operating cash flow of $133 million and free cash flow was $18 million.
The company did not repurchase any share in the quarter under review. However, during the nine months ended Sep 30, 2017, the company repurchased $350 million of its common stock.
Disappointing Guidance
NCR reduced revenue and earnings outlook for 2017. Additionally, the fourth-quarter guidance was disappointing.
For the year, the company now anticipates revenues in the range of $6.475-$6.525 billion, lower than previous guided range of $6.63-$6.75 billion. The Zacks Consensus Estimate is currently pegged at $6.68 billion. The lower-than-expected revenue guidance was primarily due to weakness in ATM market.
Non-GAAP earnings per share are now anticipatedin the range of $3.10-$3.20, lower than the previous guided range of $3.32-$3.42 per share. The Zacks Consensus Estimate is pegged at $3.37. The decrease in earnings per share was mainly due to lower ATM hardware and attached software licenses.
The company now expects operating cash flow in the range of $745-$775 million (previous guidance $805-$830 million). Moreover, free cash flow is now anticipated to be between $440 million and $470 million (previous guidance $500 million and $525 million). The decrease in the cash flow outlook was mainly due to effect of lower revenues.
Coming to the fourth-quarter outlook, NCR expects revenues in the range of $1.74-$1.79 billion. The Zacks Consensus Estimate is pegged at $1.93 billion.
The company expects non-GAAP earnings per share for the third quarter in the range of 83-93 cents. The Zacks Consensus Estimate is pegged at $1.11 per share.
Our Take
NCR reported mixed third-quarter 2017 results wherein the bottom line surpassed the Zacks Consensus Estimate while thetop line missed the same. Also, the company lowered fiscal 2017 outlook and provided disappointing fourth-quarter guidance. The main reason behind such a weak view was softness in ATM market.
Hence, the lower-than-expected revenues during the quarter poor guidance impacted the share price movement. Shares of the company went down more than 10% in after-hours trading yesterday.
Nonetheless, we expect NCR’s POS platform to be a tailwind. The demand for NCR’s POS solution is increasing among retailers and restaurant owners as it facilitates the automation of bill payment and accounting. As a result, managers get ample time for customer interaction, leading to increased productivity.
Global research company RBR recently acknowledged NCR as the world’s #1 POS software provider for the retail and hospitality industries. The recognition reflects NCR’s portfolio strength as well as improving opportunities in the POS market.
Moreover, continuous product launches and synergies from acquisitions are catalysts. Additionally, continuous deal wins will drive growth.
However, competition from Diebold Inc. (DBD - Free Report) and HP Inc. (HPQ - Free Report) , and a high debt burden remain concerns.
Applied Materials has an expected long-term EPS growth rate of 17.1%.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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NCR Beats on Q3 Earnings, Revenues Miss, Lowers '17 View
NCR Corporation reported mixed results for third-quarter 2017. The company’s non-GAAP earnings (excluding restructuring, acquisition-related expenses and other one-time items) from continuing operations of 93 cents per share surpassed the Zacks Consensus Estimate of 90 cents and surged 6.9% year over year.
Quarterly earnings also came toward the higher end of the company’s guided range of 88-93 cents. The robust bottom-line performancecan primarily be attributed toefficient cost management and a lower share count.
Notably, the stock has outperformed the industry in the last year. NCR’s shares have returned 21.8% against the industry’s decline of 1.4%.
Revenues
The company’s revenues of $1.663 billion missed the Zacks Consensus Estimate of $1.683 billion and decreased a marginal 0.8% on a year-over-year basis. The softness in revenues during the quarter was primarily impacted by weakness in the ATM business.
Per the company, “ATM orders continue to be negatively impacted by large customer delays in spending in North America, weakness in India, the Middle East and Africa, and the upcoming Windows 10 conversion.”
The company’s product revenues came in at $657 million, down 7.2% from the year-ago-quarter. However, service revenues increased 3.8% year over year and came in at $1.006 billion.
During second-quarter 2016, NCR modified reportable segments to reflect changes in its structure. The new reportable segments are Software, Services and Hardware segments.
The company’s Software revenues on a reported basis were up 2% to $476 million. The increase was primarily due to a 5%, 6% and 3% increase in Cloud, Professional Services and Software maintenance revenues, respectively. Nonetheless, Software license was down 12%. Notably, net ACV during the quarter increased 37% and came in at $16 million in the quarter.
Services revenues increased 3% to $609 million on a reported and constant currency basis. The increase was primarily due to hardware maintenance growth.
Hardware revenues however decreased 6% year over year on a reported basis to $578 million.
The segment revenues from ATM and SCO declined 16% and 24%, respectively, which negatively impacted the overall hardware revenues. However, revenues from POS surged 19%, while that of IPS remained flat on a year-over-year basis. The increase POS revenues were primarily owingto new products rollout and replacements. On a constant currency basis, Hardware revenues decreased 7%.
Margins
Non-GAAP gross profit for the quarter decreased 1% and came in at $486 million, primarily due weakness in ATM business and unfavorable revenue mix. Further, the non-GAAP gross margin decreased 10 basis points (bps) to 29.2%, mainlydue to lower software license revenue and reduced hardware margins.
Income from operations on a non-GAAP basis was $235 million, up from $230 million a year ago. Also, operating margin expanded 40 bps on a year-over-year basis, primarily due to strong cost control measures, lower employee compensation expenses as well as better productivity.
Non-GAAP operating expenses during the quarter came in at $251 million, reflecting an increase from $261 million in the year-ago quarter.
Non-GAAP net income from continuing operations was $143 million compared with $135 million in the year-ago quarter.
Balance Sheet & Cash Flow
The ATM and POS manufacturer exited the quarter with cash and cash equivalents of approximately $405 million, up from $377 million in the previous quarter. Receivables were $1.41 billion compared with $1.32 billion in the previous quarter.
However, NCR has a highly-leveraged balance sheet. The company ended the quarter with $2.98 billion of long-term debt in its book as compared with$3 billion reported in the previous quarter.
In the third quarter, the company generated operating cash flow of $133 million and free cash flow was $18 million.
The company did not repurchase any share in the quarter under review. However, during the nine months ended Sep 30, 2017, the company repurchased $350 million of its common stock.
Disappointing Guidance
NCR reduced revenue and earnings outlook for 2017. Additionally, the fourth-quarter guidance was disappointing.
For the year, the company now anticipates revenues in the range of $6.475-$6.525 billion, lower than previous guided range of $6.63-$6.75 billion. The Zacks Consensus Estimate is currently pegged at $6.68 billion. The lower-than-expected revenue guidance was primarily due to weakness in ATM market.
Non-GAAP earnings per share are now anticipatedin the range of $3.10-$3.20, lower than the previous guided range of $3.32-$3.42 per share. The Zacks Consensus Estimate is pegged at $3.37. The decrease in earnings per share was mainly due to lower ATM hardware and attached software licenses.
The company now expects operating cash flow in the range of $745-$775 million (previous guidance $805-$830 million). Moreover, free cash flow is now anticipated to be between $440 million and $470 million (previous guidance $500 million and $525 million). The decrease in the cash flow outlook was mainly due to effect of lower revenues.
Coming to the fourth-quarter outlook, NCR expects revenues in the range of $1.74-$1.79 billion. The Zacks Consensus Estimate is pegged at $1.93 billion.
The company expects non-GAAP earnings per share for the third quarter in the range of 83-93 cents. The Zacks Consensus Estimate is pegged at $1.11 per share.
Our Take
NCR reported mixed third-quarter 2017 results wherein the bottom line surpassed the Zacks Consensus Estimate while thetop line missed the same. Also, the company lowered fiscal 2017 outlook and provided disappointing fourth-quarter guidance. The main reason behind such a weak view was softness in ATM market.
Hence, the lower-than-expected revenues during the quarter poor guidance impacted the share price movement. Shares of the company went down more than 10% in after-hours trading yesterday.
Nonetheless, we expect NCR’s POS platform to be a tailwind. The demand for NCR’s POS solution is increasing among retailers and restaurant owners as it facilitates the automation of bill payment and accounting. As a result, managers get ample time for customer interaction, leading to increased productivity.
Global research company RBR recently acknowledged NCR as the world’s #1 POS software provider for the retail and hospitality industries. The recognition reflects NCR’s portfolio strength as well as improving opportunities in the POS market.
Moreover, continuous product launches and synergies from acquisitions are catalysts. Additionally, continuous deal wins will drive growth.
However, competition from Diebold Inc. (DBD - Free Report) and HP Inc. (HPQ - Free Report) , and a high debt burden remain concerns.
Currently, NCR carries a Zacks Rank #3 (Hold).
A better-ranked stock in the technology sector is Applied Materials, Inc. (AMAT - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Applied Materials has an expected long-term EPS growth rate of 17.1%.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Click for details >>