It has been about a month since the last earnings report for NCR (NCR). Shares have added about 8.7% 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 its most recent earnings report in order to get a better handle on the important catalysts.
NCR Beats on Q3 Earnings and Revenues
NCR Corporation (NCR) third-quarter 2019 non-GAAP earnings of 73 cents per share surpassed the Zacks Consensus Estimate of 67 cents. On a year-over-year basis, the figure increased 25.9%.
The company’s revenues of $1.78 billion topped the consensus estimate of $1.60 billion. The figure increased 15% year over year on a reported basis and 17% in constant currency (CC).
Growth across each of the segments, particularly banking drove the top line.
Banking revenues increased 18% on a reported basis and 21% in CC, primarily due to 60% CC growth in ATM revenues driven by higher backlog conversion and strong order rates.
Software related to ATMs contributed considerably to the year-over-year increase in Banking revenues, with growth in hardware maintenance backlog and a future annuity stream from large customer wins in the quarter.
Strength in ATM replacement cycle, particularly in the Americas and Europe, and upgrades on Windows 10, were significant revenue drivers for the segment.
Retail revenues rose 12% on a reported basis and 13% in CC, driven by revenue contribution of JetPay and solid traction in self-checkout solution. Higher hardware maintenance activity and several new managed service contracts benefited the segment.
Hospitality revenues increased 12% on a reported basis and 13% in CC, driven by higher cloud revenues from NCR Silver and Aloha products, payments revenues from the JetPay acquisition, and increase in point-of-sale revenues.
The company’s Digital Banking Solution witnessed solid growth. NCR launched some new features in the third quarter that increased revenues from new and existing customers while improving retention rate. During the quarter, it signed 29 recurring contract deals that would have been an upfront payment in the past.
NCR completed the acquisition of D3 Technology early in the third quarter. Notably, the clinical services provider NYMBUS licensed the D3 Digital Banking platform shortly after the acquisition was completed.
In Digital First Restaurant, NCR witnessed early success in its bundle of software, services, hardware and payments, Aloha Essentials. Notably, 65% of all SMB Aloha sites sold through its direct sales channel were sold as an Aloha Essentials subscription bundle.
Digital Connected Services continued to witness an expansion of customer base.
Non-GAAP gross profit of $513 million was up 20.7% year over year. Non-GAAP gross margin expanded 140 basis points to 28.8%.
Non-GAAP operating expenses were $311 million, up 17.8% due to higher employee-related and real estate costs.
Non-GAAP operating income of $202 million increased 25.5% year over year.
Operating income from Banking grew 47% in CC, driven by a favorable mix for ATMs, and higher software margin related to ATMs.
Operating income of the Retail segment rose 28% in CC primarily driven by improved hardware profitability.
Operating income of the Hospitality segment decreased 34% in CC due continued investment in NCR Silver and NCR Aloha.
Balance Sheet & Other Financial Details
NCR exited the quarter with cash and cash equivalents of approximately $388 million, up from $335 million reported in the previous quarter.
The company ended the third quarter with $3.42 billion of long-term debt compared with $2.92 billion in the second quarter.
Free cash flow was $57 million against outflow of $9 million in the prior quarter.
The company raised full-year 2019 revenue guidance. It now expects 5-6% year-over-year revenue growth, up from previously predicted 3-4% rise.
NCR reiterated outlook for full-year 2019 earnings, net income and cash flow. Non-GAAP earnings per share are expected to be between $2.75 and $2.85.
Cash flow from operations is estimated to be between $705 million and $730 million and free cash flow is likely to be $300-$350 million.
Unusually strong revenue growth in the fourth quarter of last year is expected to make year-over-year comparison difficult.
Notably, majority of NCR’s annual free cash flow is typically generated in the fourth quarter. This is expected to reflect positively in the balance sheet.
How Have Estimates Been Moving Since Then?
Estimates revision followed a downward path over the past two months. The consensus estimate has shifted -7.22% due to these changes.
Currently, NCR has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.
NCR has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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