NCR Corporation’s (NCR: 13.99 +0.82 +6.23%) second quarter loss per share of 35 cents exceeded the Zacks Consensus Estimate loss of 31 cents.Revenue
NCR reported second quarter 2010 revenue of $1.18 billion, an increase of 4.7% from $1.12 billion in the year-ago quarter. This includes a benefit of one percentage point from foreign currency translation. Year-over-year revenue growth benefited from improving global economic conditions, especially fueled by overseas markets, such as Europe and Asia-Pacific. The company is witnessing good business trends in Europe even after taking into consideration the recent financial crisis.
NCR reports results according to the various geographic segments. Accordingly, the Americas reported revenues of $515.0 million, an increase of 2.0% from the year-ago quarter. This increase was fueled by growth in the entertainment industry and increased sales volume to the retail industry, rationalized to a certain extent by lower volumes of products and services agreements to customers in the financial services industry.
In the Europe, Middle East & Africa (EMEA) region, revenues were $421.0 million, an increase of 10.0% from the year-ago quarter. The increase in revenue was primarily driven by higher sales to customers belonging to the financial services, retail and hospitality industry. The Asia-Pacific and Japan (APJ) region reported revenues of $241.0 million, an increase of 3.0% from the year-ago quarter, attributable to higher retail sales in Japan, and higher service revenues generated from the retail and financial services industries.
Operating Results
The GAAP gross margin for the quarter was 20.5%, versus 20.4% in the year-ago quarter. Gross margin was positively impacted by some cost-control measures implemented by the company, as a result of which cost of sales as a percentage of revenue remained almost flat on a year-over-year basis.
Income from continuing operations for the second quarter was $20.0 million, or $0.12 per diluted share, versus $20.0 million, or $0.13 per diluted share reported in the year-ago quarter. Income from continuing operations for the recently concluded quarter includes $50.0 million of pension expense and $7.0 million of incremental costs incurred in connection with the relocation of the company’s global headquarters. Excluding these items, non-GAAP income from continuing operations was $0.35 per diluted share compared to $0.31 in the year-ago quarter.
Second quarter net income attributable to NCR was $20.0 million or $0.12 per diluted share versus net income of $20.0 million or $0.13 per diluted share in the year-ago quarter. This included costs related to the relocation of the company’s headquarters of $0.03 per share and pension expense of 20 cents. Excluding these items, the non-GAAP loss per diluted share was $0.35 versus $0.31 per diluted share in the year-ago quarter.
Balance Sheet
NCR generated $87.0 million of cash from operating activities during the second quarter of 2010 compared to $52.0 million in the year-ago period. Capital expenditures were $53.0 million in the second quarter of 2010, up from $36.0 million in the year-ago period. NCR generated $42.0 million of free cash flow (cash from operations less capital expenditures) in the second quarter of 2010, which was a negative of $9.0 million in the second quarter of 2009. NCR ended the second quarter with $447.0 million in cash and cash equivalents, up from $408.0 million in the previous quarter.
Guidance
Management expects full-year 2010 revenue to be up 2.0% to 5.0% on a constant currency basis from 2009. This apart, the company expects GAAP income from operations in the range of $83.0 million to $103.0 million, down from its previous guidance of $90.0 to $110.0 million. The diluted EPS (GAAP) is expected to remain in the range of$0.36 to $0.46, down from $0.39 to $0.49 and non-GAAP EPS in the range of $1.35 to $1.45, same as its previous guidance.
Conclusion
Revenues improved across regions, especially in EMEA, where sales were driven by customers across sectors. However, overall, sales improved due to recovery in macroeconomic conditions especially in retail, financial services and the hospitality industries, NCR’s mainstay.
We are encouraged by the company’s market leadership, successful acquisitions, new product introductions and new business ventures. We expect its robust business model and aggressive cost-cutting measures to help it return to growth across all the segments in the medium to long term.
| Overall Summary: |  55%, Bullish 45%, Bearish
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