NCR finds something to love (or at least like) in 2015 revenues


For American companies that operate globally, 2015 was not a great year.


Still, NCR Corp. Chairman, President and CEO Bill Nuti would say that it was not such a bad year.


Which is essentially what he did say to financial analysts listening in on the company's Q4 earnings call this week.


Nuti admitted that 2015 turned out to be far more challenging than expected:

  • [I]n 2015 the Canadian dollar dropped by 16 percent; the Australian dollar by 10 percent; the Brazilian real by 30 percent; and the euro by 10 percent. Additionally, as the year wore on, we weathered the unexpected macro challenge of lower oil prices and destabilization in many of our stronger oil-sensitive countries; geopolitical shocks; lower global GDP growth than expected; and volatile capital markets in the back half of the year.
  • On top of all that we were immersed in an all-encompassing strategic review process that took the better part of a year to complete and successfully culminated with an $820 million investment in NCR by Blackstone, coupled with a $1 billion share buyback.


The impact of unfavorable FX in 2015 was undeniably huge: a $415 million hit to revenues; $72 million carved out of profits; 27 cents eroded from earnings per share.


But all things considered, Nuti said, "I was particularly impressed with NCR's 2015 results."


Which were as follows:

  • revenue of $6.4 billion in 2015 compared with $6.6 billion in 2014, down 3 percent, or in constant currency, up 3 percent;
  • operational gross margin down two-tenths of a percent, from 29.5 to 29.3;
  • year-over-year nonpension operating income of $830 million compared with $820 million, up 1 percent as reported, 10 percent in constant currency;
  • non-GAAP earnings per share of $2.78 compared with $2.74 — up 1 percent as reported, 11 percent in constant currency; and
  • free cash flow of $409 million compared with $313 million, up 31 percent year over year.


What these numbers don't capture, though, is NCR's ongoing metamorphosis from a vendor of margin-pressured hardware to a provider of much more lucrative software and services.


CFO and Chief Accounting Officer Bob Fishman pointed out that NCR added 40 basis points to its full year operating margins primarily as a result of growth in software-related revenue.


While economic conditions are weighing on the sales of ATMs, Fishman said, "Our high-value solutions — including branch transformation, cloud and enterprise software — improved in the year ... we are encouraged by the positive trends in a number of key businesses, including community banks and cloud-delivered digital banking application."


Nuti, Fishman and Andy Heyman, SVP and president of NCR Financial Services, fielded analysts' questions on the year's big developments — including omnichannel growth in the community bank sector, the company's $800 million deal with Blackstone, and the proposed merger of NCR's two biggest competitors, Diebold Inc. and Wincor Nixdorf AG. Analysts were also keen to know more about omnichannel business prospects:


Heyman on omnichannel and software-driven sales ...


The key to the success is really not any one of the point solutions. It's really the omnichannel story taking off ...


I wouldn't say greater one way or the other [hardware vs. software sales]. What I would say is that it's a software-driven sale that we then would attach hardware onto. The old NCR was certainly a hardware-driven sale and today ... it's a software driven sale, and [this is] especially true in the community financial institution segment where they don't have the time to "best-of-breed" the decision process.


They are looking for a fully integrated solution, including cloud and digital banking, tied in with the integration to self-service and branch transformation channel that, oh, by the way, has hardware that attaches with that to bring it to life.


Fishman on Blackstone ...


[T]heir portfolio businesses have $100 billion of purchasing power. So it's everything from lower prices at Hilton to taking advantage of some of their sourcing processes, their purchasing tools, as an example. And so really every function at NCR is getting with the Blackstone counterpart and looking at ways so they can optimize their spend.


I'd also add that what we're seeing is the access to the talent pool that exists within Blackstone. So if we're looking for a business process improvement person or some other skill around any of our transformation areas, whether it'd be software services or sales transformation, there does seem to be a team of there that can help us with those initiatives.


Nuti on the effects of the Diebold-Wincor combination ...


We have seen for the latter part of 2015 — and currently 2016 — consistent pressure on pricing because both of those companies are coming together and wanting to perform well prior to integration.


But we do expect post-integration for that hopefully to improve going forward. And we strongly believe that market consolidation will only increase the opportunities for NCR.


This consolidation and future strategic moves by industry participants are a clear response to the needs of our customers, and their inherent focus on omnichannel enablement.


As I said earlier, we feel like we have established a healthy, competitive advantage that we intend to build on by ramping up our innovation efforts, new product introduction, and further cloud as well as mobile growth.


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