NCR Rings Up a Strong Quarter

By Markets Fool.com

Smart businesses evolve with their markets, and NCR (NYSE: NCR) has gone from being a premier provider of cash registers to a full-service payment-acceptance business that includes not only hardware but also software and services to help its customers. The payment industry has seen big changes lately, and coming into its third-quarter financial report on Tuesday, NCR investors had hoped to see at least minimal growth in the company's fundamental business. NCR actually managed to do a bit better than most investors had expected, and the company also boosted its full-year guidance for 2016. Let's look more closely at the latest from NCR and whether the company can keep up positive momentum in the near future.

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Image source: NCR.

NCR makes the most of its opportunities

NCR's third-quarter results were positive in most investors' eyes. Sales climbed 4% to $1.68 billion, which was far better than the less than 1% increase that most of those following the stock were expecting to see. Net income climbed higher by 7% to $105 million, and a reduction in share count helped boost adjusted earnings to $0.87 per share, up almost 12% from year-ago levels and easily topping the consensus forecast for $0.81 per share in earnings.

Overall, currencies played a key role in the company's total performance. The strong dollar cost NCR six percentage points of prospective top-line growth, although the impact on its various business units wasn't consistent across the entire company.

Taking a look at NCR's different businesses provides some different viewpoints of the health of the overall company. The biggest gains came from NCR's software division, with 8% total revenue growth coming primarily from contributions from licensing, maintenance, and cloud-based sales. In particular, software licensing revenue jumped by a quarter. The services side produced 5% sales growth, while hardware was generally flat. In hardware, rising sales from ATMs and self-checkout devices offset the decline in revenue from the divested printer-services unit.

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CEO Bill Nuti celebrated NCR's successes. "Software revenue growth accelerated due to solid growth in cloud and software license," Nuti said, while "in our services business, revenues continue to grow, and we are hard at work executing efficiency programs that will drive improved customers success." The CEO also pointed to healthy results in the hardware segment, with new products helping to drive performance.

What's coming down the road at NCR?

More importantly, NCR thinks that it can continue to build on its recent momentum. The company raised its guidance for the full 2016 year, citing "accelerating revenue trends, ongoing improvement in execution, and the benefits of our global Omni-Channel leadership position" as justifying the upward move.

Specifically, NCR now expects that revenue will finish the year between $6.47 billion and $6.5 billion, which is between $100 million and $150 million higher than its most recent guidance and continued a streak of stronger anticipated top-line results. The company now predicts adjusted earnings of between $2.97 and $3.02 per share, up from its previous range of $2.90 to $3 per share. Free cash flow should be consistent with past guidance, likely falling within a range of $425 million to $475 million.

In addition, fourth-quarter guidance was consistent or better than what NCR investors were expecting. Revenue of $1.729 billion to $1.759 billion would be higher than the consensus forecast of $1.68 billion, while adjusted earnings of $1.01 to $1.06 per share neatly surrounds the $1.04 per share that most investors expect.

Overall, NCR investors seemed to like the report, sending the stock up by more than 3% in after-hours trading following the announcement. As long as the near future works out as well as NCR believes it will, then the company's fundamental business should be able to sustain its momentum through the end of 2016 and beyond.

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Dan Caplinger 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.