Shares of NCR Corp. ( NCR ) were up 3.5% in after-hours trading on Tuesday following mixed second-quarter 2014 results and an encouraging fiscal 2014 guidance.
The company reported adjusted earnings (excluding acquisition-related costs, amortization of intangibles and other one-time items) of 68 cents per share, which came ahead of the Zacks Consensus Estimate of 66 cents.
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Though NCR's reported revenues increased 8% on a year-over-year basis to $1.66 billion, it lagged the Zacks Consensus Estimate of $1.67 billion. The year-over-year improvement in revenues was mainly due to a 42% increase in software revenues and a whopping 247% increase in SaaS revenues.
Moreover, year-over-year improvements in its business segments (particularly Financial Services segment) positively impacted total revenue in the quarter. Nonetheless, Hardware revenues were down 4% on a year-over-year basis and came in at $637.0 million.
Revenues from the Financial Services segment were $900.0 million, up 15.1% from the year-ago quarter. The upside was primarily attributed to Branch Transformation and higher mix of software-related revenues. Moreover, Digital Insight Corp. contributed $87.0 million to quarterly revenues.
In the Retail Solutions segment, revenues came in at $503.0 million, down 2.3% primarily due to lower-than-expected orders from North America. The Hospitality segment witnessed a 7.6% increase in revenues aided by the addition of international customers, especially in Mexico, Australia and New Zealand.
Moreover, strong revenue contributions from America and Europe positively impacted revenues. The company's focus on North America's SMB market (19.0% year over year revenue growth) also supported revenues.
Emerging Industries' revenues increased 6.3% on a year-over-year basis to $85.0 million, primarily attributable to higher Telecom & Technology revenues (up 22.0%), which more than offset the decline in revenues from Travel.
Non-GAAP gross margin in the quarter came in at 30.0% compared to 28.9% in the year-ago quarter, primarily due to favorable mix of software revenues.
Non-GAAP operating expenses increased 10.3% on a year-over-year basis to $288.0 million due to an increase in selling, general and administrative expenses (up 6.5% on year-over-year basis) and research and development expenses (up 16.4% on year-over-year basis). Moreover, as a percentage of revenues, operating expenses increased 37 basis points from the year-ago quarter to 17.4%.
Non-GAAP operating income increased 15.4% from the year-ago quarter to $210.0 million. Operating margin was 12.7% versus 11.9% 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 $115.6 million in the quarter compared with $114.7 million in the year-ago quarter.
Balance Sheet & Cash Flow
NCR has a highly leveraged balance sheet. NCR exited the second quarter with cash and cash equivalents of approximately $483.0 million, down from $515.0 million in the previous quarter. Receivables were $1.46 billion versus $1.44 billion in the previous quarter.
The company has long-term debt of $3.84 billion compared with $3.89 billion in the previous quarter. Moreover, net debt came in at $3.36 billion compared with $3.38 billion in the previous quarter.
Net cash provided by operating activities was $80.0 million compared with $31.0 million in the previous quarter. Free cash flow in the quarter came in at 3.0 million.
For the third quarter of 2014, NCR expects non-pension operating income (NPOI) to be in the range of $225.0 million to $225.0. Effective income tax rate is expected to be approximately 28.0%.
NCR reiterated its revenue forecast for fiscal 2014. NCR now expects revenues to be in the range of $6.750 billion-$6.850 billion, up 10.0% to 12.0% year over year (mid-point 6.8 billion). The Zacks Consensus Estimate is pegged at $6.773 billion.
Moreover, NCR expects its full-year 2014 non-pension operating income (NPOI) to remain in the range of $900 million to $920 million. Non-GAAP earnings per share are expected to be in the range of $3.00 to $3.10 (mid-point $3.05 per share). The Zacks Consensus Estimate is pegged at $3.01 per share.
NCR reported mixed second-quarter 2014 results, wherein the bottom line came ahead of Zacks Consensus Estimate but the top line missed. The company witnessed margin expansion aided by higher mix of software business. NCR provided encouraging guidance, anticipating balanced revenue growth across its business segments, especially its Financial Services segment.
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, Inc. ( DBD ) and Hewlett-Packard ( HPQ ), and high debt burden are concerns.
Currently, NCR Corp. has a Zacks Rank #4 (Sell). NVIDIA Corporation ( NVDA ) is a better-ranked technology stock carrying a Zacks Rank #1 (Strong Buy).
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