NCR (NCR) Down 12% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for NCR (NCR). Shares have lost about 12% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is NCR due for a breakout? 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 catalysts.

NCR Q1 Earnings Miss Estimates, Revenues Match

NCR’s first-quarter 2020 non-GAAP earnings of 31 cents per share missed the Zacks Consensus Estimate by 3.12%. On a year-over-year basis, the metric decreased 1.2%.

The company’s revenues of $1.5 billion matched the consensus mark. The figure, however, decreased 2% year over year on a reported basis and 1% at constant currency (CC).

The coronavirus outbreak had an adverse impact on the business. Moreover, a tornado destroyed its fulfillment center near Nashville, TN, in March, hurting the business further. Both events had a combined impact of $75-$80 million, primarily affecting hardware and attached software sales.

Further, foreign exchange headwinds were an added woe.

Previous guidance for 2020 was withdrawn as the company is still assessing the potential impacts of the pandemic.

Quarter Details

Banking revenues increased 1% on a reported basis and 3% at cc year over year, driven by strong demand for software and service solutions, partially offset by an 8% decline in ATM revenues due to coronavirus-related disruptions and a 2% year-over-year impact of foreign currency fluctuations.

Retail revenues fell 8% on a reported basis and 7% at cc, due to the pandemic and the Nashville fulfillment center crises. Moreover, a large customer rollout in the prior-year quarter led to a difficult year-over-year comparison. Also, a 1% year-over-year impact of foreign currency fluctuations added to the segment’s concerns.

Hospitality revenues decreased 12% on both reported and cc basis, due to pandemic-related demand issues and the Nashville outage.

The company’s Digital Banking Solution witnessed positive momentum and added eight new customers. The acquisition of D3 Technology in the prior quarter drove revenues for the business.

In Digital First Restaurant, the company continued to see traction in Aloha Essentials. Notably, NCR added 372 Aloha Essentials sites as subscription bundles.

Margins

Non-GAAP gross profit of $404 million was down 4.9% year over year. Non-GAAP gross margin expanded 80 basis points to 26.9%. Decrease in hardware volumes across all segments was an overhang. However, higher software revenues partially offset these adversities.

Non-GAAP operating expenses were $300 million, up 7.9% due to increased expenses from acquisitions completed in the prior year and higher account receivable reserves. Increased investments in strategic growth platforms also added to higher operating expenses.

Non-GAAP operating income of $104 million fell 29.3% year over year.

Other Financial Details

NCR ended the quarter with cash and cash equivalents of $1.2 billion compared with $509 million in the December quarter.

Free cash outflow was $15 million against an inflow of $296 million in the prior quarter.

Net cash provided by operating activities was $61 million.

Notably, cash provided by operating activities and free cash outflow in the first quarter of 2020 included insurance proceeds worth $25 million for the inventory loss from the Nashville Global Fulfillment Center damage.

In order to strengthen its liquidity position, NCR suspended its share repurchase program and merger and acquisition activities, and cut senior employee salaries, among other cost-cutting steps. Additionally, on Mar 24, the company withdrew the remaining available funds of $630 million from its five-year, $1.1-billion revolving credit facility. Moreover, it recently issued $400 million of senior unsecured notes.

How Have Estimates Been Moving Since Then?

Estimates review followed a downward path over the past two months. The consensus estimate has shifted -41.16% due to these changes.

VGM Scores

At this time, NCR has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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