NCR Corp. Q2 Earnings: A Springboard to Second-Half Growth?

By Markets Fool.com

Image source: NCR.

Continue Reading Below

NCR (NYSE: NCR) reported second-quarter results last week. The maker of business tools for retailers, telecoms, financial services, and more exceeded expectations and raised its full-year guidance targets. Let's dig a little deeper into NCR's report.

NCR's Q2 results: The raw numbers

Q2 2016 Actuals

Q2 2015 Actuals

Growth (year-over-year)

Revenue

$1.62 billion

$1.60 billion

1.3%

Net Income From Continuing Operations

$74 million

($343 million)

N/A

GAAP EPS (diluted)

$0.49

($2.03)

N/A

Free Cash Flow

$55 million

$95 million

(42%)

Source: NCR.

What happened with NCR this quarter?

Continue Reading Below

If the year-ago quarter looks rough here, it's because NCR took a $426 million non-cash charge for mark-to-market pension adjustments in that period. Backing out that large item and some one-time costs related to restructuring and acquisitions, NCR's adjusted earnings rose from $0.66 to $0.72 per diluted share.

  • Recurring sales now account for 43% of NCR's total revenue, as the company pushes for long-term deals over snapshot sales. That's up from 42% in the year-ago quarter.
  • Hardware revenue decreased 5% year-over-year, which amounts to holding flat if adjusted for currency exchange effects. The software and services divisions grew by single-digit percentages, with or without currency adjustments.
  • Free cash flow fell back as NCR invested cash now to pave the way for higher sales in the second half of 2016. Full-year cash flow guidance was unchanged, remaining at roughly $450 million.

Heartened by a strong order flow in the second quarter, management raised their revenue target for the full year.

  • The full-year revenue goal increased from approximately $6.3 billion to $6.36 billion. The expected improvement comes from stronger hardware orders and a shrinking impact from currency headwinds.
  • Earnings guidance for the full fiscal year was untouched, much like the cash flow forecast. Management remains "confident" that the current target of $2.95 per share is reachable.

What management had to say

CEO Bill Nuti saw the first half of 2016 as a springboard to greater achievements in the back half of the year.

This year has been marked by improving execution and a number of large, strategic wins in the omnichannel software, channel transformation, and digital enablement space. ...

Our clear-cut focus will be on sales funnel and order growth, backlog conversion, margin expansion driven by software, a competitive and more strategically aligned cost structure, and capturing the developing customer opportunities in the omnichannel channel transformation, and digital enablement markets.

-- Bill Nuti

Nuti sees omnichannel and digital sales as primary value creators between now and 2025, across NCR's many client industries.

Looking ahead

NCR has been riding a rocky road in recent quarters, missing its own revenue targets more often than not. This quarter was a sharp break from that negative trend.

Management has a clear long-term plan in mind. The challenge now becomes executing against these long-term goals. NCR is off to a good-looking start, but the second half of 2016 had better deliver on Nuti's cash-intensive strategic vision.

A secret billion-dollar stock opportunity
The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.

Anders Bylund has no position in any stocks mentioned. The Motley Fool recommends NCR. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.