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NCR (NCR) Up 6.9% Since Last Earnings Report: Can It Continue?

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  • NCR

A month has gone by since the last earnings report for NCR (NCR). Shares have added about 6.9% 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 drivers.

NCR Q3 Earnings Surpass Estimates, Revenues Improve Y/Y

NCR Corporation reported mixed third-quarter 2021 results, wherein the bottom line surpassed the Zacks Consensus Estimate but the top line lagged the same. The enterprise technology provider reported non-GAAP earnings of 69 cents, surpassing the Zacks Consensus Estimate of 66 cents per share.

The bottom line improved 22.2% from 54 cents per share reported in the year-ago quarter, primarily driven by higher revenues and improved margins.

For the third quarter of 2021, the company reported revenues of $1.9 billion, missing the consensus mark of $2 billion. However, the top line witnessed year-over-year surge of 20%, driven by contributions from the Cardtronics business, and solid growth across the company’s banking and hospitality segments.

NCR progressed significantly with its strategic growth initiatives, which are transforming it into a software platform and payments company. The company’s recurring revenues improved 39% to $1.18 billion in the quarter under review.

Quarterly Details

Banking revenues increased 35% year over year to $1.05 billion, primarily on higher software and services revenues (including the contributions of Cardtronics), partially offset by lower ATM hardware sales. Software and services revenues increased 29% to $1.45 billion during the quarter.

Retail revenues dipped 1% to $553 million, chiefly on lower self-checkout revenues, partially mitigated by growth in point-of-sale revenues across its food-drug-merchandise and convenience-fuel-retail customers. Additionally, the company’s ongoing strategy of transitioning to recurring revenue business model from selling perpetual software licenses also negatively impacted the Retail division’s sales in the quarter.

Hospitality revenues surged 29% to $223 million, primarily driven by an increase in point-of-sale revenues across the company’s enterprise and small-and-medium business customers.

During the third quarter, NCR’s T&T revenues declined 10% to $75 million.

The company’s Digital Banking Solution continued witnessing solid momentum, with revenues increasing 9% year over year to $129 million. Digital banking registered users also climbed 9% year over year to 26.5 million.

Operating Details

Non-GAAP gross profit of $546 million was up 22.4% year over year. Non-GAAP gross margin expanded 60 basis points (bps) to 28.7%, primarily driven by favorable mix of higher margin software and services revenues, partially offset by supply-chain disruptions-led elevated costs.

Non-GAAP operating expenses flared up 14.9% year on year to $331 million, mainly due to the company’s planned increase in research and development costs related to higher strategic investments and inclusion of Cardtronics expenses.

Adjusted EBITDA surged 41.4% year over year to $352 million. The adjusted EBITDA margin expanded 280 bps to 18.5%.

Non-GAAP operating income increased to $215 million from the year-ago quarter’s $158 million. Non-GAAP operating margin expanded 140 bps to 11.3% from the year-earlier quarter’s 9.9%.

Balance Sheet & Other Details

NCR ended the September-end quarter with cash and cash equivalents of $383 million compared with $449 million reported during the June-end quarter.

Free cash inflow totaled $125 million compared with the prior quarter’s $142 million. Net cash provided by operating activities was $497 million during the third quarter. During the first nine months of 2021, the company generated operating and free cash flows of $807 million and $360 million, respectively.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -9.51% due to these changes.

VGM Scores

At this time, NCR has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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