ATM machines proved to be the winning ticket for NCR Corporation, which reported this week that Q2 numbers beat analysts' estimates.
During an earnings call Tuesday, NCR President and CEO Michael Hayford said the company hit 76 cents per share, which was 10 cents higher than the Zacks Consensus Estimate of 66 cents. Compared to the same period last year, shares saw an increase of 17%.
"I'm proud of the progress we've made in the first-half of the year," he said. "We are clearly in the early innings of a multi-year strategy, but we've been confident that our strategy will create long-term shareholder value."
Total revenues for the quarter were $1.71 billion, up 11% year over year, beating Zacks by 8.49%. This compares to year-ago revenues of $1.54 billion. Over the last four quarters, the company has topped consensus revenue estimates three times.
The stock price was $32.33 at close of day Tuesday but hit $34.37 on Wednesday.
Strong performance in banking
NCR's strongest Q2 performance was in its banking segment, where total revenues were up 20% as reported to $828 million from $725 million in the same period a year ago.
The increase was driven primarily by ATM revenues, which were up 73%. Software and services related to ATMs contributed considerably to the increase.
"We are seeing a stronger than expected ATM replacement cycle in addition to Win 10 upgrades, with particular strength in the quarter in the Americas and in Europe," Andre Fernandez, the company's executive VP and CFO, told market analysts during the call.
In responding to a question later in the call, Owen Sullivan, the company's COO, pointed out that while ATM sales in North American and Europe -- and even South America -- were strong, "We're not seeing the same kind of growth, and we haven't been, quite honestly, over the last several quarters in the Asia Pacific market."
The company's retail segment grew 4% to $558 million from $557 million a year ago, driven by the acquisition of JetPay Corp., a payment processor, along with an increase in payments, self-checkout and services revenue.
Hospitality saw the smallest growth. Revenue in that segment increased 2% to $202 million from $198 million a year ago. The increase was driven by an increase in cloud revenue from the company's NCR Silver (a tablet based PoS system), Aloha products (restaurant PoS systems) and the JetPay acquisition, according to the company.
As reported, software sales were up 6% in the second quarter, compared to the same period a year ago. Services were up 2%, and hardware sales were up 30%, mainly due to ATM sales.
Margins and operating cost highlights included:
- Non-GAAP gross profit of $487 million was up 8.5% year over year. Non-GAAP gross margin contracted 70 basis points to 28.5%.
- Second quarter non-GAAP operating expenses were $295 million, increased from $284 million in the prior year period. The increase was due to higher employee-related and real estate costs.
- Non-GAAP operating income of $192 million increased 16.4% year over year.
- Operating income of the banking segment grew 37%, driven by higher volume of ATM sales and a favorable mix of revenue in software and services.
- Operating income of the retail segment decreased 2% as reported, mainly due to currency fluctuations.
- Operating income of the hospitality segment decreased 32% due to the decline in hardware revenues and continued investment in customer satisfaction initiatives.
How's the future look?
NCR ended the second quarter with cash and cash equivalents of approximately $335 million, down from $414 million reported in the first quarter of the year.
The company reported $2.92 billion longterm debt in the second quarter compared with $2.91 billion in the prior quarter. Free cash flow was $9 million, compared to $27 million in the second quarter of 2018.
The company is executing a "spend optimization program" to drive at least $100 million in savings this year. And it is working to bundle its software offerings to earn more money through subscriptions.
As a result of its solid second quarter performance, NCR raised its 2019 revenue growth guidance to a range of 3-4% year-over-year revenue growth, up from the previous forecasted range of 1-2%.
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