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NCR (NCR) Down 10.8% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for NCR (NCR). Shares have lost about 10.8% 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 drivers.

NCR Corporation Q4 Earnings and Revenues Miss Estimates

NCR delivered lower-than-expected fourth-quarter 2022 results. The company’s fourth-quarter non-GAAP earnings increased 3.9% year over year to 79 cents per share but missed the Zacks Consensus Estimate of 82 cents.

Pricing and cost actions described in April 2022 were accretive to the company’s fourth-quarter bottom line. However, the strong U.S. dollar reduced non-GAAP earnings by 3 cents per share. Additionally, lower revenues also hurt the bottom line.

For the fourth quarter of 2022, the company reported revenues of $2 billion, missing the consensus mark of $2.04 billion. The top line witnessed a year-over-year decline of 1%.

The Russia-Ukraine conflict, inflationary pressure and rising interest rates remained headwinds. Unfavorable currency exchange rates negatively impacted fourth-quarter revenues by approximately $72 million. NCR stated that the fourth-quarter top line grew 2% 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. Moreover, component costs are still very high.

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.

Segment Details

From 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 8% to $319 million. NCR’s Digital Banking Solution revenues increased by 5% to $139 million. Hospitality revenues climbed 3% to $239 million.

In the fourth quarter, Self-Service Banking revenues declined to $691 million from $707 million in the year-ago quarter. Retail revenues plunged 5% to $575 million.

Operating Details

The non-GAAP gross profit of $520 million was down 5.3% year over year. Moreover, the non-GAAP gross margin rate contracted 110 basis points (bps) to 25.9%.

Non-GAAP operating expenses decreased 14% year over year to $288 million. As a percentage of revenues, non-GAAP operating expenses declined to 14.3% from 16.4% in the year-ago quarter.

Adjusted EBITDA increased 7.6% year over year to $380 million despite a negative impact of $20 million due to the unfavorable foreign currency exchange rate. The adjusted EBITDA margin expanded 150 bps to 18.9%.

The non-GAAP operating income increased to $232 million from the year-ago quarter’s $215 million. The non-GAAP operating margin expanded 90 bps to 11.5% from the year-earlier quarter’s 10.6%.

Balance Sheet & Other Details

NCR exited the December-end quarter with cash and cash equivalents of $505 million compared with the $434 million reported during the September-end quarter.

Net cash provided by operating activities was $202 million in the fourth quarter and $447 million in the full-year 2022. In the fourth quarter and full-year 2022, NCR generated free cash flow of $202 million and $164 million, respectively.

Guidance

While providing guidance for the first quarter and full-year 2023, NCR stated that beginning in 2023, it will exclude the impact of stock-based compensation expenses from the non-GAAP diluted EPS calculation. Up to 2022, the company included stock-based compensation expenses in the non-GAAP calculation. The change in methodology will inflate its EPS.

Coming to the guidance, for the first quarter of 2023, NCR projects revenues between $1.8 billion and $1.9 billion. It forecasts non-GAAP EPS of 55-60 cents under the new methodology and 35-40 cents under the previous methodology. The company projects adjusted EBITDA of approximately $300 million and expects to generate free cash flow in the band of $100-$200 million in the first quarter.

For the full-year 2023, NCR projects revenues between $7.8 billion and $8 billion. It forecasts non-GAAP EPS in the band of $3.30-$3.50 under the new methodology and $2.55-$2.75 under the previous methodology.

The company projects adjusted EBITDA in the range of $1.45-$1.55 billion. NCR expects to generate free cash flow in the band of $400-$500 million in 2023.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

The consensus estimate has shifted -29.21% due to these changes.

VGM Scores

Currently, NCR has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, NCR has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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