NCR Corporation (NYSE:NCR) reported financial results today for the three months ended June 30, 2011.
Reported revenue of $1.31 billion increased 12 percent from the second quarter of 2010. Second-quarter revenues reflect a favorable impact of 6 percent as a result of foreign currency translation.
NCR reported second-quarter income from continuing operations (attributable to NCR) of $35 million, or $0.22 per diluted share, compared to income from continuing operations (attributable to NCR) of $20 million, or $0.12 per diluted share, in the second quarter of 2010. Income from continuing operations in the second quarter of 2011 included $53 million ($38 million or $0.23 per diluted share, after-tax) of pension expense and $1 million ($1 million or $0.01 per diluted share, after tax) of acquisition related costs. Income from continuing operations for the second quarter of 2010 included $50 million ($33 million or $0.20 per diluted share, after-tax) of pension expense and $7 million ($4 million or $0.03 per diluted share, after-tax) of incremental costs related to the relocation of the Company's global headquarters. Excluding these items, non-GAAP income from continuing operations in the second quarter of 2011 was $0.46 per diluted share compared to $0.35 in the prior year period.
"Our second quarter performance was driven by the NCR team's ongoing ability to execute on our strategy and our growth initiatives and provides us the confidence to increase our full year guidance," said Bill Nuti, chairman and chief executive officer of NCR. "We continue to capitalize on growing business opportunities in our core industries where our leadership resulted in strong order activity and revenue growth, reflecting increased demand in our core solutions both domestically and internationally. Our recently-announced plan to acquire Radiant Systems will extend that core by moving us into a leadership position in a third vertical that is exceptionally complementary to our financial and retail businesses and that offers compelling growth potential. At the same time, we're extending our lead in emerging industries like Telecom and Technology and Travel. And we're extremely well-positioned in our Entertainment business while also exploring partnerships or other alternatives for our DVD kiosk operations."
Second-Quarter 2011 Operating Segment Results
The Financial Services segment generated second-quarter revenue of $729 million, an increase of 15 percent from the second quarter of 2010. Growth was evident across most geographies, including the Brazil/India/China/Middle East/Africa (BICMEA), North America, Europe, and Caribbean and Latin America (CLA) theaters. The second-quarter year-over-year revenue comparison included 7 percentage points of benefit from foreign currency translation.
Operating income for Financial Services was $77 million in the second quarter of 2011 as compared to $75 million in the second quarter of 2010. This increase was driven by higher revenue partially offset by an unfavorable shift in product mix and continued investment in sales resources.
Retail & Hospitality
The Retail & Hospitality segment reported revenue of $449 million, up 3 percent from the second quarter of 2010, driven largely by growth in the BICMEA, North America and South Asia Pacific theaters. The second quarter year-over-year revenue comparison included 5 percentage points of benefit from foreign currency translation.
Operating income for Retail & Hospitality was $22 million in the second quarter of 2011 as compared to $15 million in the second quarter of 2010. This increase was driven by higher revenue, an improved product mix, and lower service delivery costs.
Entertainment reported revenue of $38 million, an increase of 65 percent from the $23 million recorded in the second quarter of 2010. Year over year same store sales growth was up 30% as a result of new entertainment kiosk deployments and the Company's strategy to redeploy selected kiosks to better performing locations.
Operating loss for Entertainment was $17 million in the second quarter of 2011 as compared to a loss of $10 million in the second quarter of 2010. This decrease was driven by additional kiosk and DVD depreciation from increased kiosk deployment.
Emerging Industries revenue was $96 million, an increase of 16 percent versus the prior year period as a result of strong performance in the North America and Europe theaters. The second-quarter year-over-year revenue comparison included 7 percentage points of benefit from foreign currency translation.
Operating income for Emerging Industries was $19 million in the second quarter of 2011 as compared to $8 million in the second quarter of 2010. This increase was primarily driven by improved product and services mix and lower service delivery costs.
Second-Quarter 2011 Business Highlights
In the second quarter of 2011, NCR further advanced the deployment and introduction of self-service solutions across its core and emerging industries. The following are NCR's second quarter business highlights:
In the financial services segment, NCR continues to advance its Scalable Deposit Module (SDM) technology with more customers, shape the future of consumer transactions, and drive penetration of its APTRA™ solutions.
A number of major ATM networks completed their certification testing of SDM, establishing the new technology as compatible with key software systems. NCR is in the process of completing the certification testing process with additional networks and has received orders for nearly 7,000 SDM units since the product was introduced in October of 2010.
NCR has also taken steps to drive the future of ATM technology and bank branch transformation. NCR announced the global launch of the next generation of NCR Financial Kiosk - the SelfServ™ 4 and the SelfServ™ 8 - which offer consumers the convenience of bypassing teller lines and quickly completing typical branch transactions such as account opening, account maintenance and financial products research and purchase.
NCR also recently integrated two-way video conferencing into its multi-function SelfServ™ 32 ATMs which allows consumers to video conference with live, remote bank tellers directly from the ATM. The technology enables financial institutions to offer up to 24 hour access to teller services, build new small-footprint branches, and provide teller services in areas not served by branches.
In addition, Broadway Bank, a $2.3 billion financial institution serving south central Texas, will deploy NCR SelfServ™ ATMs to replace currently installed machines and will utilize NCR Solidcore for APTRA™ as well as NCR's second line hardware and software maintenance.
NCR recently announced the rollout of NCR APTRA™ Cash Connect 6.0, software designed to help financial institutions and employees use, monitor and integrate multi-vendor teller automation units such as teller cash recyclers (TCRs). APTRA™ Cash Connect 6.0 supports all major teller automation units (TAU) in the market today.
HDFC Bank, India's second largest private bank, earned a 2011 Celent Model Bank Award for its customer experience which was created through the implementation of NCR APTRA™ eMarketing solution. The advanced marketing software enabled HDFC Bank to personalize self-service experiences while delivering targeted and consistent messages through multiple channels including ATM, email, Internet, mobile and call centers.
VTB Bank, one of the leading providers of financial services in Russia, implemented the NCR APTRA Relate™ software to extend the functionality of their ATMs and create marketing campaigns based on customer data taken from their CRM system. The software will help VTB engage in personalized dialogue with its more than 300,000 customers and sell additional financial products.
In the retail space, Wine Country Gift Baskets a leading retailer of online gift baskets, signed a multi-year renewal of NCR's APTRA™ eMarketing solution which enables synchronized customer communications across multiple channels. NCR also announced a new software release (7.0) of its Advanced Checkout Solution with enhancements that will help grocers increase business agility, lower operating costs and provide an improved shopping experience for customers.
In its June 2011 report titled "Global EPOS and Self-Checkout 2011," Retail Banking Research (RBR) ranked NCR as the global market leader in the rapidly growing self-checkout market. According to the report, NCR is by far the world's largest self-checkout supplier in terms of both installed base and shipments.
In the Entertainment business, NCR is installing more than 800 BLOCKBUSTER Express®-branded movie kiosks at Food Lion grocery stores across 11 states in the Southeast and Mid-Atlantic. The kiosks will also be available at other Delhaize America supermarkets, including Bottom Dollar Food, Harveys and Reid's grocery stores.
NCR continued to advance its self service technologies across its emerging industries. NCR and Frontier Airlines announced the roll-out of 75 NCR TouchPort™ 70 kiosks to an additional 14 airports across the U.S. The deployment expands the existing footprint of Frontier Airlines' kiosks, facilitating quick and convenient self-service check-in and other flight related services. In addition, Copa Airlines, one of Latin America's leading carriers, has launched mobile check-in and boarding pass delivery technologies from NCR which will allow Copato continue to enhance its customers' travel experiences.
In the healthcare business, NCR strengthened its product line through the selection of Electronic Payment Exchange (EPX) as its preferred payment provider. The integration of EPX's technology with NCR MediKiosk and NCR Patient Portal self-service solutions can help healthcare organizations lower transaction fees by streamlining the number of payment providers. During the quarter, Conifer and Blair Medical Associates became the first customers to integrate this single-source payment capability.
NCR's global services business and its commitment to fulfilling customer needs continue to receive third party recognition. Gartner ranked NCR as the global market share leader in retail industry product support for 2010 based on product support revenue in their March 31, 2011 report "Market Share Analysis: IT Services, Worldwide, 2010." Gartner also reported that NCR ranked third worldwide in financial services product support revenue and tenth worldwide across all vertical markets in hardware maintenance and support revenue in 2010. In addition, NCR recently reached its highest ranking to date (8th overall) in the 2011 Global Outsourcing 100® rankings awarded by the International Association of Outsourcing Professionals® (IAOP®). NCR demonstrated excellence in evaluation categories including global presence, customer references, company recognitions and certifications, employee management and executive leadership.
Second-Quarter 2011 Financial Highlights
Income from operations was $47 million in the second quarter of 2011, which included $53 million of pension expense and $1 million of acquisition related costs. This compares to $31 million of income from operations in the second quarter of 2010, which included $50 million of pension expense and $7 million of incremental costs related to the relocation of the Company's global headquarters. Excluding these items, non-GAAP income from operations(2) was $101 million in the second quarter of 2011 compared to $88 million in the second quarter of 2010.
Net cash provided by operating activities was $64 million during the second quarter of 2011 compared to $87 million in the year-ago period. Cash from operating activities in the second quarter of 2011 was negatively impacted by investment in working capital period over period due to higher revenues in the second quarter of 2011 and for the remainder of the year. Net capital expenditures of $42 million in the second quarter of 2011 increased from the $38 million in net capital expenditures in the second quarter of 2010. Discontinued operations yielded $7 million of cash outflow in the second quarter 2011 compared to $8 million of cash provided in the second quarter of 2010. NCR generated break-even free cash flow (cash from operations and discontinued operations, less capital expenditures and additions to capitalized software)(3) in the second quarter of 2011, compared to free cash flow of $42 million in the second quarter of 2010. Additionally, NCR generated free cash flow of $4 million in the six months ended June 30, 2011, compared to free cash flow of $5 million in the six months ended June 30, 2010.
NCR contributed approximately $24 million to its international and executive pension plans in the second quarter of 2011 compared to $25 million in the second quarter of 2010. The company expects to contribute approximately $125 million in 2011. The net funded status of the company's global pension plans was approximately $(997) million as of December 31, 2010, an improvement of $51 million from the previous year end.
Other expense, net was $2 million in the second quarter of 2011 compared to no other income or expense in the prior year period.
Income tax expense was $8 million in the second quarter of 2011 compared to $11 million in the second quarter of 2010. NCR expects its full year 2011 effective income tax rate to be approximately 27%.
NCR repurchased approximately 1.8 million shares of its common stock for approximately $35 million during the second quarter.
NCR ended the second quarter of 2011 with $457 million in cash and cash equivalents compared to the $480 million balance as of March 31, 2011. As of June 30, 2011, NCR had a debt balance of $11 million.
NCR expects full-year 2011 revenues to increase in the range of 6 to 8 percent on a constant currency basis compared with 2010, up from previous guidance of 5 to 7 percent growth. Including the continuing investment in the entertainment portfolio, the company now expects its full-year 2011 Income from Operations (GAAP) to be $174 million to $189 million, non-GAAP non-pension operating income (NPOI)(2) to be in the range of $385 to $400 million, GAAP diluted earnings per share to be $0.79 to $0.86 and non-GAAP diluted earnings per share excluding pension expense (1) to be in the range of $1.73 to $1.80 per diluted share. The 2011 non-GAAP EPS guidance excludes estimated pension expense of $210 million (approximately $151 million after-tax) compared with actual pension expense of $208 million ($149 million after-tax) in 2010. NCR expects its full year 2011 effective income tax rate to be approximately 27 percent. These amounts are exclusive of the pending acquisition of Radiant Systems Inc.
The company expects third quarter 2011 non-pension operating income (NPOI)(2) to be in the range of $100 million to $105 million, compared to $90 million in the third quarter of 2010. The company expects its third quarter 2011 effective tax rate to be in the range of 27% to 31%.