NCR Beats on Q4 Earnings, Misses Rev - Analyst Blog

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NCR Corp. ( NCR ) posted fourth-quarter 2013 adjusted earnings (excluding all special items and pension expenses) of 83 cents per share, beating the Zacks Consensus Estimate of 80 cents. Moreover, on a year-over-year basis earnings increased 14.9%.

Revenues

NCR reported revenues of $1.67 billion in the fourth-quarter of 2013, up 1.7% from the year-ago quarter. Revenues in the quarter missed the Zacks Consensus Estimate of $1.79 billion. The year-over-year improvement in revenues was mainly due to software revenue growth and increase in SaaS revenues. The addition of Retalix to the Retail Solutions portfolio also positively impacted total revenue in the quarter.

Revenues from the Financial Services segment were $852.0 million, down 7.5% from the year-ago quarter. The downside was due to a decline in the Americas theater.

In the Retail Solutions segment, the company generated revenues of $536.0 million, up 9.4% from the year-ago quarter. The increase in revenues was driven by growth in all theaters, primarily driven by favorable contribution from the Retalix business.

The Hospitality segment witnessed a 17.3% increase in revenues. Emerging Industries' revenues were also up 30.9% on a year-over-year basis to $106.0 million. Revenue growth in both segments was primarily driven by improvement in all theaters.

It is worth noting that NCR completed the acquisition of Digital Insight Corp., a provider of online and banking solutions. The company's solutions complement NCR's existing business and enhance its capabilities. Moreover, the acquisition has helped NCR customers to access account balances, payments via mobile banking apps for Apple ( AAPL ) iOS and Android devices.

NCR also closed the acquisition of Alaric Systems Ltd, a provider of fraud prevention solutions. The merger of Alaric Systems Ltd will help to reduce complexities in managing ATMs, point of sale, e-commerce and mobile payment or banking transactions.

Operating Results

Non-GAAP gross margin in the quarter was 28.9% versus 26.4% in the year-ago quarter. Gross margin improved 260 basis points year on year, primarily due to a favorable mix of software revenues.

Non-GAAP operating expenses increased 4.4% on a year-over-year basis to $263.0 million due to an increase in selling, general and administrative expenses and research and development expenses. Moreover, as a percentage of revenues, operating expenses increased 40 basis points from the year-ago quarter to 15.7%.This in turn impacted NCR's operating performance.

Non-GAAP operating income increased 22.1% from the year-ago quarter to $221.0 million. Operating margin was 13.2% versus 11.0% in the year-ago quarter. Margin expansion was primarily attributed to better-than-expected software revenue mix and efficient cost management.

NCR's non-GAAP net income (excluding all special items and pension expenses) from continuing operations was $142.0 million or 83 cents in the quarter compared with $119.0 million or 72 cents in the year-ago quarter.

Balance Sheet & Cash Flow

NCR exited the fourth quarter with cash and cash equivalents of approximately $528.0 million, up from $460.0 million in the previous quarter. Receivables were $1.34 billion versus $1.35 billion in the previous quarter. The company has a long-term debt of $3.32 billion.

Net cash provided by operating activities was $265.0 million compared with net cash used in operating activities of $27.0 million in the previous quarter. Without considering the impact of pension settlement payment, free cash flow for the quarter came in at 317.0 million.

Guidance

For first quarter of 2014, NCR expects non-pension operating income (NPOI) to be in the range of $155.0 million to $165.0 million, up from $129 million reported in the year-ago quarter.. Effective income tax rate is expected to be approximately 25.0%.

For full-year 2014, NCR expects revenues to increase in the range of 12.0% to 14.0% year over year. Moreover, NCR expects its full-year 2014 non-pension operating income (NPOI) to remain in the range of $900 million to $920 million, up from $717 million the year ago quarter. Non-GAAP earnings per share are expected to be in the range of $3.00 to $3.10. The Zacks Consensus Estimate is pegged at $3.10 per share.

Our Take

NCR reported mixed fourth-quarter results, with earnings per share beating the Zacks Consensus Estimate but revenues missing the same. The company also witnessed margin expansion aided by higher mix of software business. Moreover, NCR provided an encouraging guidance, anticipating balanced revenue growth across its business segments.

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. 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 and competition from Diebold Inc. ( DBD ), European exposure and high debt burden are concerns.

Currently, NCR Corp. has a Zacks Rank #3 (Hold). Western Digital Corporation ( WDC ) is a better-ranked technology stock carrying a Zacks Rank #2 (Buy).




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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: AAPL , DBD , NCR , WDC

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