It has been about a month since the last earnings report for NCR (NCR). Shares have added about 12.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is NCR due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
NCR Corporation Q3 Earnings Top Estimates, Sales Miss
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.
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.
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.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -15.88% due to these changes.
Currently, NCR has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise NCR has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
NCR is part of the Zacks Computer - Integrated Systems industry. Over the past month, IBM (IBM), a stock from the same industry, has gained 10.2%. The company reported its results for the quarter ended September 2022 more than a month ago.
IBM reported revenues of $14.11 billion in the last reported quarter, representing a year-over-year change of -19.9%. EPS of $1.81 for the same period compares with $2.52 a year ago.
IBM is expected to post earnings of $3.57 per share for the current quarter, representing a year-over-year change of +6.6%. Over the last 30 days, the Zacks Consensus Estimate has changed -1.2%.
IBM has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.
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