Image source: NCR.

NCR (NYSE:NCR) reported second-quarter results last week. The maker of business tools for retailers, telecoms, financial services, and more exceeded expectations and raised its full-year guidance targets. Let's dig a little deeper into NCR's report.

NCR's Q2 results: The raw numbers

 

Q2 2016 Actuals

Q2 2015 Actuals

Growth (year-over-year)

Revenue

$1.62 billion

$1.60 billion

1.3%

Net Income From Continuing Operations

$74 million

($343 million)

N/A

GAAP EPS (diluted)

$0.49

($2.03)

N/A

Free Cash Flow

$55 million

$95 million

(42%)

Source: NCR.

What happened with NCR this quarter?

If the year-ago quarter looks rough here, it's because NCR took a $426 million non-cash charge for mark-to-market pension adjustments in that period. Backing out that large item and some one-time costs related to restructuring and acquisitions, NCR's adjusted earnings rose from $0.66 to $0.72 per diluted share.

  • Recurring sales now account for 43% of NCR's total revenue, as the company pushes for long-term deals over snapshot sales. That's up from 42% in the year-ago quarter.
  • Hardware revenue decreased 5% year-over-year, which amounts to holding flat if adjusted for currency exchange effects. The software and services divisions grew by single-digit percentages, with or without currency adjustments.
  • Free cash flow fell back as NCR invested cash now to pave the way for higher sales in the second half of 2016. Full-year cash flow guidance was unchanged, remaining at roughly $450 million.

Heartened by a strong order flow in the second quarter, management raised their revenue target for the full year.

  • The full-year revenue goal increased from approximately $6.3 billion to $6.36 billion. The expected improvement comes from stronger hardware orders and a shrinking impact from currency headwinds.
  • Earnings guidance for the full fiscal year was untouched, much like the cash flow forecast. Management remains "confident" that the current target of $2.95 per share is reachable.

What management had to say

CEO Bill Nuti saw the first half of 2016 as a springboard to greater achievements in the back half of the year.

This year has been marked by improving execution and a number of large, strategic wins in the omnichannel software, channel transformation, and digital enablement space. ...

Our clear-cut focus will be on sales funnel and order growth, backlog conversion, margin expansion driven by software, a competitive and more strategically aligned cost structure, and capturing the developing customer opportunities in the omnichannel channel transformation, and digital enablement markets.

-- Bill Nuti

Nuti sees omnichannel and digital sales as primary value creators between now and 2025, across NCR's many client industries.

Looking ahead

NCR has been riding a rocky road in recent quarters, missing its own revenue targets more often than not. This quarter was a sharp break from that negative trend.

Management has a clear long-term plan in mind. The challenge now becomes executing against these long-term goals. NCR is off to a good-looking start, but the second half of 2016 had better deliver on Nuti's cash-intensive strategic vision.