NCR Corporation (NCR) Q3 Earnings Top Estimates, Sales Miss

NCR Corporation NCR delivered better-than-expected third-quarter 2022 bottom-line results. The company’s third-quarter non-GAAP earnings jumped 16% year over year to 80 cents per share and surpassed the Zacks Consensus Estimate of 78 cents.

Increased revenues mainly drove the company’s bottom line higher. Additionally, the pricing and cost actions described in April this year were accretive to the company’s third-quarter bottom line. However, the strong U.S. dollar reduced non-GAAP earnings by 12 cents per share.

For the third quarter of 2022, the company reported revenues of $1.97 billion, missing the consensus mark of $2 billion. However, the top line witnessed year-over-year growth of 4%, driven by strong execution and solid growth across the company’s business segments except Other.

However, the Russia-Ukraine conflict, inflationary pressure and rising interest rates remained headwinds. Unfavorable currency exchange rates negatively impacted third-quarter revenues by approximately $78 million. NCR stated that the third-quarter top line grew 8% on a constant currency basis.

Additionally, NCR stated that supply-chain challenges, though have started to ease, are causing uneven revenue generation and increased investments in working capital.

NCR progressed significantly with its strategic growth initiatives, which are transforming it into a software platform and payments company. The company’s recurring revenues improved by 3% to $1.22 billion in the quarter under review.

NCR Corporation Price, Consensus and EPS Surprise

NCR Corporation price-consensus-eps-surprise-chart | NCR Corporation Quote

Segment Details

Since the first quarter of 2022, NCR changed its reporting segments to correspond with changes to its operating model, management structure and organizational responsibilities. The new reportable revenue segments are Payments & Network, Digital Banking, Self-Service Banking, Retail and Hospitality.

Payments & Network revenues soared 11% to $336 million from the mere $304 million in the year-ago quarter, primarily driven by merchant acquiring and higher-value transactions.

NCR’s Digital Banking Solution revenues increased by 7% to $137 million. The strong quarterly performance was mainly driven by increased user counts, a CSP win at Citibank and continued success at Terrafina.

In the third quarter, Self-Service Banking revenues marginally improved to $640 million from $637 million in the year-ago quarter.

Retail revenues increased 6% to $575 million, mainly driven by a better product mix and pricing.

Hospitality revenues climbed 6% to $238 million. The reopening of restaurants and business activities drove the segment’s revenues higher.

Operating Details

The non-GAAP gross profit of $528 million was down 3.3% year over year. Moreover, the non-GAAP gross margin rate contracted 190 basis points (bps) to 26.8%.

Non-GAAP operating expenses decreased 16% year over year to $279 million.

Adjusted EBITDA increased 8% year over year to $380 million, despite a negative impact of $22 million due to the unfavorable foreign currency exchange rate. The adjusted EBITDA margin expanded 80 bps to 19.3%.

The non-GAAP operating income increased to $249 million from the year-ago quarter’s $215 million. The non-GAAP operating margin expanded 130 bps to 12.6% from the year-earlier quarter’s 11.3%.

Balance Sheet & Other Details

NCR exited the September-end quarter with cash and cash equivalents of $434 million compared with the $398 million reported during the June-end quarter.

Net cash provided by operating activities was $127 million in the third quarter. The free cash outflow was $28 million compared to the prior quarter’s cash inflow of $125 million.

Reiterated FY22 Guidance

NCR reaffirmed its guidance for the full year of 2022, which it provided in the first-quarter earnings release. For the full-year 2022, NCR continues anticipating revenues of approximately $8 billion.

The company projects adjusted EBITDA in the band of $1.4-$1.5 billion. Non-GAAP diluted earnings are still projected between $2.70 and $3.20 per share.

For the fourth quarter, the company assumes to deliver similar results to the third quarter from revenue and profit perspectives while expecting a significant improvement in free cash flow.

Zacks Rank & Stocks to Consider

Currently, NCR carries a Zacks Rank #4 (Sell). Shares of NCR have plunged 49.5% year to date (YTD).

Some better-ranked stocks from the broader Computer and Technology sector are Digi International DGII, Zscaler ZS and Baidu BIDU. Digi and Zscaler each sport a Zacks Rank #1 (Strong Buy) at present, while Baidu carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Digi’s first-quarter fiscal 2023 earnings has increased by 4 cents to 42 cents per share over the past 90 days. For fiscal 2023, earnings estimates have moved 6.2% up to $1.88 per share in the past 60 days.

DGII's earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 28.6%. Shares of the company have increased 60.4% YTD.

The Zacks Consensus Estimate for Zscaler's first-quarter fiscal 2023 earnings has been revised 7 cents north to 26 cents per share over the past 60 days. For fiscal 2023, earnings estimates have moved a penny north to $1.18 per share in the past 30 days.

ZS’ earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 28.6%. Shares of the company have declined 51.9% YTD.

The Zacks Consensus Estimate for Baidu's fourth-quarter 2022 earnings has been revised 4 cents northward to $2.79 per share over the past 30 days. For 2022, earnings estimates have moved downward by 11 cents to $9.05 per share in the past 30 days.

Baidu's earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 58.1%. Shares of BIDU have slumped 45.7% YTD.

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