Technology solutions provider NCR Corp. (NCR) reported its fourth quarter results last week. Adjusted earnings grew 15.3% year over year to $0.83 which beat analyst expectations. The company saw its earnings increase 14.9% on a year-over-year basis. Revenue for the quarter grew 1.7% to $1.67 billion, but was below the Street’s expectation of $1.78 billion.
Numbers at a Glance
Revenue of the Hospitality segment improved 17.3% which was driven by the results from all the operating regions. Particularly, Aloha software platform and point-of-sale (POS) terminals witnessed new deployments at various restaurants.
Retail Solutions revenue increased 9.4% on the back of solid demand for its software solutions, POS terminals and self-checkout solutions. Much support was drawn from the recently acquired retail software and services provider Retalix.
Emerging Industries segment revenue saw revenue increase 31% -- which suggests healthy growth in demand for NCR’s self-service technologies from the travel industry, particularly airline companies.
However, the Financial service segment suffered a 7% decline in revenue. The revenue drop was mostly driven by weak demand for its ATMs in the matured North American market. But demand for ATMs was stable in Europe and Asia.
Growing Software Dependency
NCR is growing as a hardware-enabled, software-driven business and its continuous investments in the software space are paying off well. The company posted a 27% year-over-year growth in software revenue. This was the result of improved performance from all the operating segments.
In 2011, NCR acquired Radiant Systems, a provider of hardware and software systems, for the hospitality industry. In February 2013, the company completed its acquisition of Retalix to strengthen its retail business. The same year, it acquired Wyse Sistemas de Informática Ltd., which provides software solutions aiming at Brazilian hospitality industry. Last December, it bought Alaric Systems, a fraud prevention and transaction processing software provider, to expand its capabilities in the financial services space.
The higher mix of software revenue is also playing a crucial role in margin expansion. Adjusted operating margin increased 220 basis points to 13.2% year over year mainly due to high-margin software sales that compensated for an increase in operating expenses.
According to technology research firm Gartner (IT), enterprise software spending could grow 6.8% to $320 billion in 2014. The growing focus on software gives tremendous opportunity to NCR that could benefit the company in a huge way.
NCR has invested both organically and inorganically over the years. The tech player plans to invest in software, emerging industries like travel and telecom, and the development of newer technology to remain competitive and innovative.
Last month, the company showcased a host of software solutions, software services and retail technology solutions at the National Retail Federation Big Show Expo. It also introduced a new POS solution, NCR Silver 3.0, targeting small and medium businesses (SMB) with high potential. NCR Silver 3.0 will run on Apple’s (AAPL) iPhone, iPad and iPod Touch.
The company expects its lately acquired Alaric Systems and Digital Insight to drive its overall revenue in 2014, and substantially contribute towards the Financial Services segment.
Driven by the customer win trends, benefits from continuous investments, and growing software momentum, NCR now expects revenue to grow in the range of 12% to 14% (up from 7% in 2013) for the current fiscal. Earnings per share are expected to be around $3.00 to $3.10, up from $2.81 in 2013. The company’s future outlook appears very encouraging with its strengthening software business. The growing importance of software gives all reasons to believe that NCR has solid growth prospects. The company is also expected to largely benefit from the synergies of combination.