NCR Performs Better Than Expected

| About: NCR Corporation (NCR)

NCR Corp. (NYSE:NCR) posted decent fourth quarter earnings per share of 55 cents, beating the Zacks Consensus Estimate of 51 cents.


NCR Corp. reported fourth quarter 2010 revenue of $1.40 billion, up 4.5% from $1.34 billion in the year-ago quarter. The reported revenue was slightly ahead of the Zacks Consensus Estimate of $1.39 billion. Order growth was strong during the fourth quarter, and the order backlog also improved.

The company continues to execute well on sustainable productivity improvements. In 2010, the company introduced products in areas of both hardware and software.

NCR Corp. reports results as per geographic segments. Accordingly, revenues increased 12.0% in the Americas fueled by higher product sales to customers in financial services, retail as well as hospitality industries in the United States, the Caribbean, and Latin America.

Revenues from Europe, Middle East & Africa (EMEA) increased 2.0% from the year-ago quarter encouraged by higher sales to customers in financial services as well as retail and hospitality industries across the region.

The Asia-Pacific and Japan region reported a 5.0% fall in revenues from the year-ago quarter. Lower product sales to customers in financial services as well as retail and hospitality industries across the region may be held responsible for the decline.

Operating Results

Gross margin for the quarter was 20.3% versus 18.3% in the year-ago quarter. A favorable impact from cost-control initiatives and an improved business mix led to the improvement.

NCR reported fourth-quarter income from continuing operations (attributable to NCR) of $32.0 million, or 20 cents per diluted share, compared to $41.0 million, or 25 cents in the year-ago quarter. Excluding special items like impairment and pension expense, non-GAAP income from continuing operations was 55 cents per diluted share compared to 53 cents in the prior-year quarter.

Balance Sheet & Cash Flow

NCR Corp. generated cash of $181.0 million from operating activities during the fourth quarter compared to $106.0 million in the year-ago quarter. Net capital expenditure of $53.0 million decreased from $59.0 million in the year-ago quarter. NCR ended the quarter with $496.0 million in cash and cash equivalents, up from $360.0 million in the previous quarter.


For the first quarter of 2011, non-pension operating income is expected in the range of $45.0 million to $50.0 million.

For full-year 2011, NCR Corp. continues to expect revenue to increase 5.0% to 7.0% on a constant currency basis from 2009. Operating income (GAAP) and non-pension operating income are projected in the range of $160.0–$180.0 million and $370.0–$390.0 million, respectively.

On a per share basis, GAAP earnings are expected to come in at between 71 cents and 81 cents, while non-GAAP earnings are projected at between $1.65 and $1.75.

Our Take

Revenues improved across all regions, especially in EMEA, where sales were driven by customers across sectors. However, overall sales improved due to a recovery in macroeconomic conditions particularly in retail, financial services and the hospitality industries.

We are encouraged by the upward revision in guidance, and believe that the company is well positioned to deliver solid momentum across its businesses.

We are encouraged by the company’s market leadership, successful acquisitions, product introductions and continued customer wins. However, we believe that near-term visibility is limited, as the company faces competition from Accenture Inc. (NYSE:ACN), since it will be some time before the company’s robust business model and restructuring initiatives begin driving the results.

NCR has a short-term Hold rating (Zacks #3 Rank).