It has been about a month since the last earnings report for NCR (NCR). Shares have added about 7.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is NCR due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
NCR Q2 Earnings and Revenues Beat Estimates, Decline Y/Y
NCR Corporation’s second-quarter 2020 non-GAAP earnings of 27 cents per share handily outpaced the Zacks Consensus Estimate of 18 cents. However, the reported figure plummeted 64.5% on lower revenues, year over year.
The company’s revenues of $1.48 billion surpassed the consensus mark of $1.33 billion. The revenue figure, however, decreased 13% year over year on a reported basis and 12% at constant currency (CC).
The coronavirus outbreak had an adverse impact on the business. Moreover, a shift from selling perpetual software licenses to recurring revenues hurt quarterly revenues by $22 million. Additionally, adverse foreign-currency fluctuations negatively impacted the top line by 1%.
Banking revenues slid 12% on a reported basis and 11% at cc year over year, due to the pandemic-induced 25% decline in ATM hardware revenues. Shift from selling perpetual software licenses to recurring revenues also affected the year-over-year comparison. Unfavorable currency exchange rates hurt the Banking segment’s top-line performance by 1%.
Retail revenues fell 13% on both reported and cc basis, due to the pandemic. Moreover, a large customer rollout in the prior-year quarter resulted in a dismal year-over-year comparison.
Hospitality revenues slipped 21% on a reported basis and 20% at cc, on the pandemic-related demand issues. Also, a 1% year-over-year impact of foreign-currency fluctuations added to the segment’s concerns.
The company’s Digital Banking Solution witnessed positive momentum and added 18 new customers. The acquisition of D3 Technology drove revenues as well.
Non-GAAP gross profit of $381 million was down 21.8% year over year. Non-GAAP gross margin contracted 280 basis points to 25.7%. Lower revenues due to the pandemic and shift to recurring revenues are the key reasons behind the declines in gross profit and margin.
Non-GAAP operating expenses declined 10.2% year on year to $265 million, mainly on the company’s cost-cutting initiatives to address the business impact of the coronavirus pandemic. Its cost-cutting measures, included salary reductions, curtailing travels, and elimination of certain contractors.
Non-GAAP operating income declined to $116 million from the year-ago quarter’s $192 million.
Other Financial Details
NCR ended the June-end quarter with cash and cash equivalents of $1.68 billion compared with the $1.2 billion reported in the March-end quarter.
Free cash inflow was $171 million against an outflow of $15 million witnessed in the prior quarter.
Net cash provided by operating activities was $229 million.
Notably, in order to strengthen its liquidity position, NCR suspended its share-repurchase program and merger and acquisition activities, and cut senior employee salaries, among other cost-cutting steps during the first quarter.
Additionally, on Mar 24, the company withdrew the remaining available funds of $630 million from its five-year, $1.1-billion revolving credit facility. Moreover, on Apr 13, the company issued $400 million of senior unsecured notes.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 14.09% due to these changes.
At this time, NCR has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, NCR has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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