NCR Corp. (NCR) posted first quarter 2012 earnings per share of 47 cents, in line with the Zacks Consensus Estimate.

Revenue

NCR Corp. reported revenues of $1.24 billion in the first quarter, up 17.6% from $1.06 billion in the year-ago quarter. Financial services generated revenue of $694.0 million in the reported quarter, up 17.3% year over year. Total orders improved 5.0% in the first quarter compared with a difficult prior-year period.

Moreover, backlog at the end of the first quarter was $1.17 billion. This reflects the 10th consecutive quarter of revenue backlog growth.

Retail solutions revenue declined 9.0% year over year to $347.0 million in the quarter. The year-over-year decrease in revenue was due to lower revenues from the American and European theatre business and transitional effect of reorganising this segment.

The Specialty Retail business, which was the part of Hospitality and Specialty Retail segment, has been included in the Retail Solutions Segment. Consequently, the segment’s hospitality business has been joined to the Hospitality and Specialty Retail segment.

Moreover, the Hospitality & Specialty Retail segment, which has now been renamed as Hospitality segment, reported revenue of $113.0 million. The segment revenue was driven largely by product volumes and services revenue in America.

Emerging Industries revenue surged 5.0% year over year to $90.0 million. The increase in revenue was driven primarily by higher Telecom & Technology customers in the Americas and Europe.

Operating Results

Gross margin in the quarter was 24.0% versus 20.7% in the year-ago quarter. The year-over-year upside in gross margin was fueled by revenue mix shift toward profitable software and services business. Another key reason for gross margin improvement was the company’s services business where revenues increased 12% and segment gross margin moved up 440 basis points year over year. The company continues to win service contracts across the globe.

NCR reported net income of $38.0 million or 23 cents per diluted share in the reported quarter compared with $19.0 million or 12 cents per diluted share in the year-ago quarter. Excluding special items like impairment, pension expense, acquisition related transaction cost, amortization and legal settlement charges non-GAAP income from continuing operations was 47 cents per diluted share compared with 33 cents per diluted share in the prior-year quarter.

Balance Sheet & Cash Flow

Net cash provided by operating activities was $89.0 million during the quarter versus $49.0 million in the year-ago period. Cash flow was positively impacted by year-over-year improvements in operating results. NCR ended the quarter with $414.0 million in cash and cash equivalents compared with $398.0 million in the prior quarter. In the quarter, NCR had a debt balance of $809.0 million.

Guidance

The company expects full-year 2012 revenues to increase in the range of 11.0% to 13.0%. GAAP diluted earnings per share are expected in the range of $1.48 to $1.55 and non-GAAP diluted earnings per share, excluding pension expense and special items, in the range of $2.40 to $2.47 per diluted share.

Conclusion

NCR reported decent first quarter results, with revenues improving across most of its business segments and geographical regions while EPS matched our expectation. We are encouraged by the fiscal year guidance and believe that the company is well positioned to deliver solid momentum across all its businesses.

The company has improved its operating performance and is managing its expenses well. Although the restructuring initiatives have started impacting results, we believe that the company should reduce its debt balance to further improve its operating performance, and must come up with new strategies to compete against Diebold Inc. (DBD).

The company has a Zacks #2 Rank, implying a short-term Buy rating.

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