The world has moved on from old-style cash registers, but NCR (NCR 0.62%) lives on as a provider of business equipment for cash and checkout handling. As a leading provider of automated teller machines as well as self-checkout stations and various other services, NCR has done a good job of reinventing itself and finding new ways to grow.
Coming into Tuesday's second-quarter financial report, NCR investors were hoping to see at least modest growth in sales and profits. The numbers NCR put up were actually better than most had expected, and the company sees a brighter future ahead for its business.
ATMs are A-OK
NCR's second-quarter results showed renewed strength after going through a tough period. Revenue of $1.71 billion was up 11% from year-ago levels, dramatically exceeding the 3% growth rate that most of those following the stock were banking on seeing. Similarly, adjusted net income picked up 20% to $116 million, and adjusted earnings of $0.76 per share were quite a bit better than the $0.67 per share consensus forecast among investors.
Image source: NCR.
Interestingly, even as NCR has tried to emphasize its software and services business as a more sustainable source of revenue growth, it was the hardware division that stood out during the second quarter. Hardware sales jumped 30% from year-ago levels, with those gains led entirely by a 73% rise in ATM sales. By contrast, self-checkout machines and point-of-sale equipment saw revenue rise just 1%. NCR attributed the gains to conversion of the company's order backlog.
Elsewhere, gains were more measured. The software division saw a 6% rise in sales, while the services segment settled for a 2% boost to its top line.
NCR's industry segments showed consistent results. Banking posted the largest growth, with those ATM sales boosting revenue 20%. Retail revenue was higher by 4% thanks to growth in payment services and self-checkout sales, and the hospitality segment saw greater levels of cloud and payments revenue that boosted its top line by 2%.
Expense management remained a key issue for NCR. Adjusted gross margin fell seven-tenths of a percentage point, continuing a downward trend for the company. Yet operating expenses were higher by just 4% on an adjusted basis, helping to contain overall costs and let NCR keep more of its profit.
What's ahead for NCR?
CEO Michael Hayford told a simple story of the company's success. "Our performance was led by our banking segment," Hayford said, "driven by strong ATM revenue growth." The CEO also noted that NCR is looking to sustain the favorable moves that have resulted in recent growth.
Looking ahead, NCR has plenty of reason for optimism. In Hayford's words:
Our focus remains centered on prioritizing investments in our strategic growth platforms, advancing the rollout of our integrated payments platform, and pursuing targeted acquisitions that are consistent with our digital first and recurring revenue strategy.
NCR made some upward adjustments to guidance to reflect the strong performance it had during the quarter. The company now believes its revenue growth will come in between 3% and 4%, up two percentage points from its projections three months ago. Adjusted earnings of $2.75 to $2.85 per share, however, remained unchanged from previous guidance, with the expectation that NCR's tax rate will be slightly higher in 2019 than it was in 2018.
NCR investors were happy about the big boost to results and guidance, and the stock climbed almost 8% in after-hours trading following the announcement. ATM growth obviously won't continue at this rate forever, but NCR's overall business model is working the way the company wants it to work. That bodes well for NCR's long-term prospects.
