A month has gone by since the last earnings report for NCR Corporation NCR. Shares have added about 9.7% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
NCR Corp. Q4 Earnings & Revenues Beat; Increase Y/Y
Keeping its earnings streak alive for the fourteenth time in a row, NCR Corp. reported better-than-expected results for the fourth quarter of 2016. The company’s non-GAAP earnings (excluding divestiture and liquidation losses and other one-time items) per share from continuing operations of $1.07 surpassed the Zacks Consensus Estimate of $1.03 and surged 20.2% year over year.
The company’s quarterly earnings also came ahead of the guided range of $1.01 to $1.06 per share. The robust bottom-line performance was mainly driven by strong top-line growth along with efficient cost management and lower share count.
Quarter in Detail
NCR Corp.’s revenues of $1.802 billion beat the Zacks Consensus Estimate of $1.743 billion and increased 7.3% on a year-over-year basis. On a constant currency basis (i.e. excluding FX impact and IPS business divesture), revenues were up 14% year over year.
During the quarter the company witnessed strong growth in Software as well as Hardware. While the Software business benefited from continued expansion of its cloud and software license offerings, the Hardware business benefited from strong demand for its Self-Checkout and A/ITM edge platforms.
During second-quarter 2016, NCR Corp. modified its reportable segments to reflect changes in the reporting structure of the organization. The new reportable segments are Software, Services and Hardware segments.
The company’s Software revenues on a reported basis were up 9% to $502 million. The year-over-year increase in software revenues was primarily due to 21%, 5%, 10% and 5% increase in Software license, Software Maintenance, Cloud and Professional Services revenues, respectively.
Services revenues inched up 1% to $598 million.
Hardware revenues jumped 11% on a year-over-year basis and came in at $702 million. In the Hardware segment, revenues from ATM and SCO surged 25% and 140%, respectively while that from POS and IPS declined 1% and 91%, respectively. Notably, the decline in IPS was mainly due to the divestment of the business during the quarter.
Non-GAAP gross profit for the quarter increased 3.5% and came in at $530 million, primarily due to higher revenues. However, non-GAAP gross margin was 29.4%, down 110 basis points (bps) from the year-ago quarter.
Income from operations on a non-GAAP basis was $264 million, up from $260 million a year ago. However, operating margin contracted 80 bps on a year-over-year basis, primarily due to lower gross margin, which was partially offset by reduced operating expenses as a percentage of revenues.
Non-GAAP net income from continuing operations was $168 million compared with $156 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 $498 million, up from $318 million in the previous quarter. Receivables were $1.28 billion compared with $1.39 billion in the previous quarter.
However, NCR Corp. has a highly leveraged balance sheet. The company ended the quarter with $3.0 billion of long-term debt in its book.
In the fourth quarter, the company generated operating cash flow and free cash flow of $525 million and $449 million, respectively. During the full year, NCR Corp. generated operating cash flow and free cash flow of $894 million and $628 million, respectively.
In 2016, the company repurchased $250 million of its common stock. Concurrent with its fourth-quarter earnings release, the company announced that it intends to make share repurchases worth $300 million. It also revealed that it has already repurchased $70 million worth of shares so far this year.
Buoyed by the better-than-expected fourth quarter performance, NCR Corp. provided a strong revenue and earnings outlook for 2017, which is well above our estimates. However, the first quarter guidance was slightly disappointing.
For the year, the company anticipates revenues in a range of $6.60 billion–$6.72 billion (mid-point $6.66 billion), which is much higher than the Zacks Consensus Estimate of $6.55 billion. Non-GAAP earnings per share are expected to come between $3.25 and $3.35 (mid-point $3.30), higher than the Zacks Consensus Estimate of $3.27.
The company expects to generate operating cash flow in a range of $805 million to $830 million and free cash flow between $500 million and $525 million.
Coming to the first-quarter outlook, NCR Corp. expects revenues in a range of $1.45 billion to $1.47 billion (mid-point $1.46 billion).
The company expects non-GAAP earnings per share for the fourth quarter to range between $0.43 and $0.48 (mid-point $0.455).
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.
NCR Corporation Price and Consensus
NCR Corporation Price and Consensus | NCR Corporation Quote
At this time, NCR Corp.'s stock has a strong Growth Score of 'A', 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 quintile 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.
Based on our scores, the stock is equally suitable for value, growth and momentum investors.
Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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