NCR (NYSE:NCR) bears little resemblance to its historical roots, having gone well beyond cash registers to incorporate a whole host of hardware and associated services to help businesses with a range of needs. With automated teller machines, self-checkout equipment, and cloud-related services, NCR has evolved to become an innovative player in the fast-moving business service space.
Coming into Thursday's fourth-quarter financial report, NCR investors wanted to see signs that the company would be able to start growing its bottom line again in the near future. NCR's numbers were relatively encouraging, and a recent acquisition could open up new growth opportunities for the company in 2019 and beyond.
NCR powers ahead
Fourth-quarter results showed how the company has overcome difficult conditions. Sales were higher by 1% to $1.8 billion, which was better than the slight decline that most of those following the stock were expecting. The company posted a net loss for the period, but after accounting for extraordinary items, adjusted earnings of $0.84 per share were $0.02 above the consensus forecast among investors, even though the figure fell slightly from year-earlier levels.
The good thing about NCR's results is that they finally started to show the completed transition in the company's business model. NCR expects software and services revenue to play a key role in driving growth, and those segments did reasonably well for the period. Software revenue was down 1% from year-ago levels, as gains in the cloud division were offset by reductions in revenue from license, maintenance, and professional services. The services segment did better, seeing its top line rise 2% from year-ago levels. As cloud-based revenue plays a larger role, it should help to offset to an even greater extent any declines on the license and maintenance side.
Meanwhile, hardware revenue was also fairly strong, posting a gain of 2%. A big gain in ATM-related sales offset declines in self-checkout and point-of-sale equipment. Production increases in the ATM area reflected a big ramp-up in efforts to convert existing backlogs into current sales. However, timing of customer rollouts hurt the company's numbers elsewhere in the hardware segment.
NCR has also kept struggling with profitability. Gross margin took a 4 percentage point hit during the quarter, with the company pointing to higher costs in hardware, along with costs associated with restructuring. Lower income tax charges were a saving grace, helping to preserve bottom-line improvement.
Can NCR keep making progress?
CEO Michael Hayford is encouraged by how well the company has done lately. "Our fourth-quarter results were indicative of the early success," Hayford said, "as we continue to improve our execution and stabilize our business." He pointed to simplification and streamlining as key initiatives that will help NCR keep improving.
The company is optimistic about its future. In Hayford's words: "We are elevating our investment in digital-focused strategic growth platforms as we look to accelerate our mix shift to recurring software and services revenues. These investments will be supported by the addition of JetPay, which gives us an end-to-end payments platform and unlocks incremental recurring revenue streams."
Yet guidance for 2019 was a bit disappointing. NCR sees revenue growth of just 1% to 2%, which is a bit more sluggish than anticipated, and adjusted earnings of $2.75 to $2.85 per share would be below the $2.90 consensus forecast among investors.
NCR investors weren't too happy about the report, and the stock fell 4% on Friday following the Thursday-night announcement. JetPay has plenty of potential to be a game changer for NCR, but the payment specialist will have to prove to investors that it can execute well on the opportunity before they'll have complete confidence in the path forward.