NCR Corp. :NCR-US: Earnings Analysis: Q4, 2016 By the Numbers : February 13, 2017

NCR Corp. reports financial results for the quarter ended December 31, 2016.

We analyze the earnings along side the following peers of NCR Corp. – USA Technologies, Inc. and Agilysys, Inc. (USAT-US and AGYS-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 1802 million, Net Earnings of USD 68 million.
  • Gross margins narrowed from 28.33% to 26.58% compared to the same period last year, operating (EBITDA) margins now 12.93% from 14.64%.
  • Year-on-year change in operating cash flow of 98.11% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth due to contribution of one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 1802 1677 1620 1444 1680
Revenue Growth (%YOY) 7.26 3.97 1 -2.17 -4.98
Earnings (mil) 68 107 76 32 48
Earnings Growth (%YOY) 41.67 4.9 122.09 -20 26.32
Net Margin (%) 3.77 6.38 4.69 2.22 2.86
EPS 0.35 0.68 0.49 0.16 0.15
Return on Equity (%) 14.54 25.83 18.34 5.8 10.91
Return on Assets (%) 3.54 5.54 3.92 1.66 2.47

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Market Share Versus Profits

Revenues History
Earnings History

NCR-US‘s change in revenue this period compared to the same period last year of 7.26% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that NCR-US is holding onto its market share. Also, for comparison purposes, revenues changed by 7.45% and earnings by -36.45% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings rose year-on-year. But this growth has not come as a result of improvement in gross margins or any cost control activities in its operations. Gross margins went from 26.58% to 28.33% for the same period last year, while operating margins (EBITDA margins) went from 12.93% to 14.64% over the same time frame.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

NCR-US‘s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days have fallen to 38.91 days from 49.59 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

NCR-US‘s change in operating cash flow of 98.11% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s operating (EBIT) margins contracted from 9.94% to 8.21%. In spite of this, the company’s earnings rose. This was influenced primarily by one-time items, which improved pretax margins from 3.15% to 4.94%.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

NCR Corp. engages in the development, manufacture, and sale of consumer transaction solutions. It operates through the following segments: Financial Services, Retail Solutions, Hospitality, and Emerging Industries. The Financial Services segment provides automated teller machines, payment processing software and hardware, cash management. video banking software, and customer-facing digital banking services. The Retail Solutions segment develops and sells point of sale terminals, omni-channel retail software platform, self-service kiosks and checkout, and bar-code scanners. The Hospitality segment offers software installations and maintenance in stores and restaurant chains. The Emerging Industries segment provides managed services for third-party computer hardware. The company was founded by John Henry Patterson in 1884 and is headquartered in Duluth, GA.

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