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NCR Corporation’s (NCR) third quarter EPS of 19 cents fell short of the Consensus Estimate of 24 cents.

Revenue
NCR reported revenue of $1.14 billion in the quarter, a decrease of 18.0% from $1.37 billion in the year-ago quarter. This decrease included approximately 1 percentage point of negative impact from foreign currency translation. Year-over-year revenue was impacted by global economic conditions and the resultant effect on the global financial services, retail and hospitality industries.

The company reports results according to the various geographic segments. Accordingly, the Americas reported revenues of $514.0 million, a decrease of 17.0% from the year-ago quarter. This decrease was primarily due to lower product sales to customers in the financial services and hospitality industries in the US, Caribbean and Latin America.

In the Europe, Middle East, Africa (EMEA) region, revenues were $390.0 million, a decrease of 22.0% from the year-ago quarter. The decrease in revenue was primarily driven by the reduction in product sales to customers in financial services across the region.

The Asia-Pacific and Japan (APJ) region reported revenues of $231.0 million, a decrease of 10.0% from the year-ago quarter. This decline may be attributed to lower sales in the financial services industry as well as a three percentage point negative impact of foreign currency translation.

Operating Results
GAAP gross margin for the quarter was 19.7%, versus 22.5% in the year-ago quarter. Gross margin was negatively impacted by lower product sales and unfavorable mix, offset by the benefit from manufacturing realignment and cost reduction initiatives.

Income from operations was $29.0 million in the quarter and included $41 million of pension expense. This compares to $100.0 million of income from operations in the third quarter of 2008, which included $5.0 million of pension expense and $12.0 million of costs related to organizational realignment activity. Excluding these items and pension expense, non-GAAP income from operations decreased to $70.0 million in the quarter compared to $117.0 million in the third quarter of 2008. This translates to non-GAAP operating margin of 6.2% for the quarter, a significant decline from 8.5% reported in the year-ago quarter.

Net income from continuing operations was $15.0 million or 9 cents per diluted share versus net income of $82.0 million or 49 cents per diluted share in the year-ago quarter. Income from continuing operations for the quarter included an after-tax impairment charge of $11.0 million related to an equity investment and an after-tax litigation charge of $4 million, totaling 10 cents per diluted share. Income from continuing operations in the third quarter of 2008 included a $10 million (after-tax) gain, or a 6 cent gain per diluted share, resulting from organizational realignment activity. Excluding these items, non-GAAP income from continuing operations was 19 cents per diluted share versus 55 cents per diluted share in the year-ago quarter. Including the results of discontinued operations net of tax, the company reported GAAP net income of $15.0 million or 9 cents per diluted share versus net income of $80.0 million or 48 cents per diluted share in the year-ago quarter.

Balance Sheet
NCR generated $51.0 million of cash from operating activities during the reported quarter compared to $157.0 million in the year-ago period. Capital expenditures of $53.0 million in the quarter increased from $37.0 million in the year-ago period.

NCR generated $2.0 million of free cash flow (cash from operations less capital expenditures) in the quarter, compared to free cash flow of $120.0 million in the third quarter of 2008. NCR ended the quarter with $419.0 million in cash and cash equivalents, a $12.0 million increase from the $407.0 million in the previous quarter.

Guidance
Given the limited near term visibility, NCR expects full-year 2009 revenues to be in the range of 12.0% to 14.0% lower on a constant currency basis compared with 2008. Based on average exchange rates for September, this would translate to reported revenues being down in the range of 14.0% to 16.0% for the year. Including the $60.0 million investment in the entertainment portfolio in 2009, which results non-pension operating income or NPOI (excluding the impact of pension expense on operating income), the company expects its full-year 2009 NPOI to be in the range of $270.0 million to $290.0 million and non-GAAP earnings from continuing operations in the range of 45 cents to 55 cents per diluted share. The 2009 EPS guidance includes pension expense of $145 million compared to 2008.

Source: NCR Falls Short of Expectations in Q3