NCR Keeps Ringing Up Profits

Published April 20, 2017
Fool.com

The way that people make payments has changed dramatically over time, and NCR (NYSE: NCR) has had to adapt to keep up with advances in the payments space. With traditional cash registers now a thing of the past, NCR now provides a variety of equipment, software, and associated services to companies that need to handle payments efficiently and effectively.

Coming into Thursday's first-quarter financial report, NCR investors wanted to see signs that the company would at least be able to produce modest gains from year-ago levels. NCR did a good job of meeting those expectations, and it believes the future could be even brighter. Let's look more closely at NCR to see what happened with the payment specialist recently and what lies ahead.

Image source: NCR.

NCR keeps moving in the right direction

NCR's first-quarter results were solid and continued the company's positive momentum. Sales were up 2% to $1.48 billion, and while that was only a small gain, it was larger than the 1% rise that most investors were expecting. On a GAAP basis, NCR lost money during the quarter, but after excluding impacts from the company's transaction with Blackstone Group (NYSE: BX), adjusted earnings of $0.56 per share were up by nearly half from year-ago levels and were stronger than the $0.46 per share consensus forecast among those following the stock.

A closer look at NCR's numbers reveals some useful details. The company said that revenue would have been 9% were it not for adverse foreign exchange impacts, as well as the downward pressure from having sold of its Interactive Printer Solutions business. For the most part, though, currency effects were minimal, reflecting the flattening of the U.S. dollar's gains recently.

On a segment by segment basis, NCR saw the strongest growth in its software license business, where revenue climbed by nearly 30% to power the entire software segment up 8%. More modest moves upward in cloud and professional services sales offset a slight decline on the software maintenance side of the business. Services revenue was also fairly strong, with a 3% rise in sales reflecting solid demand. The hardware segment took the biggest hit, but again, the sale of Interactive Printer Solutions was the main driver taking away revenue from the unit. ATM sales fell, but self-service checkout equipment and point-of-sale devices showed encouraging growth.

CEO Bill Nuti felt that NCR got things started on the right foot for 2017. "We generated solid revenue growth and gross margin expansion across each of our business segments," Nuti said, "driven by our leading portfolio of global omni-channel and channel transformation solutions." The CEO was also happy about the way that the changing way that retailers do business with automated checkout solutions helped drive business in the hardware segment.

What's ahead for NCR?

Yet NCR sees even more good things happening down the road. As Nuti put it, "Our solutions support customers of all sizes as they effectively transform their businesses and compete in the digital world, [and] our focus remains centered on strong execution, innovation, and driving customer success."

NCR responded to its quarterly results by changing its guidance for the full 2017 year. Now, NCR expects revenue of between $6.63 billion to $6.75 billion, which is $30 million higher than it had previously expected because of the improving situation with the dollar. Although the repurchase of preferred shares caused NCR to reduce its GAAP earnings projections, the company believes that adjusted earnings will be better than it previously expected, boosting its previous guidance by $0.05 to a new range of $3.32 to $3.42 per share.

For the second quarter, NCR believes sales will be between $1.59 billion and $1.62 billion. Adjusted earnings should end up between $0.72 and $0.77 per share. Those figures were slightly weaker than investors had expected, although the full-year move was still favorable.

NCR investors seemed slightly disappointed with the news, and the stock dropped about 2% in after-hours trading following the announcement. Nevertheless, as the payment company continues to make progress in pushing forward with bold new initiatives, NCR will have the ability to bolster future growth and potentially make its fundamental business prospects look even more attractive throughout 2017 and beyond.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends NCR. The Motley Fool has a disclosure policy.