NCR Corporation reported financial results for the seasonally weak quarter ended March 31, 2004, including $0.05 loss per basic and diluted share and revenue of $1.29 billion, up 5 percent from revenue in the first quarter of 2003. Included in the year-over-year revenue comparison for the first quarter was 6 percentage points of benefit from foreign currency fluctuations. At the beginning of the quarter, NCR had expected 5 to 6 percentage points of benefit from currency translation.
Operating loss for the first quarter was $8 million versus $32 million in the first quarter of 2003. Included in NCR’s operating results was $32 million of pension expense, an increase of $8 million from the first quarter of 2003.
NCR reported a first-quarter net loss of $5 million, or $0.05 loss per basic and diluted share, versus a net loss of $27 million, or $0.28 loss per basic and diluted share in the first quarter of 2003.
“We delivered another positive installment in our plan to build a stronger NCR. First-quarter results for each of our three major business units were better than anticipated, as the current capital-spending environment enabled higher-than-expected revenues, which positively leveraged our work on the cost and expense lines,” said Mark Hurd, president and chief executive officer of NCR.
Operating Segment Results
The operating segment results discussed below exclude the impact of $32 million of pension expense in the first quarter of 2004 and $24 million of pension expense in the first quarter of 2003. When evaluating the year-over-year performance of and making decisions regarding its operating segments, NCR excludes the effect of pension expense/income. Schedule B, found later in this earnings release, reconciles total “Income from operations excluding pension expense/income” for all of the company’s operating segments to “Total income from operations” for the company.
10 percent revenue growth drives 16 percent operating margin, an increase of 5 points
NCR’s Data Warehousing segment reported record first-quarter revenue of $306 million, up 10 percent from the first quarter of 2003. The first-quarter year-over-year revenue comparison included a benefit of 6 percentage points from foreign currency fluctuations.
Operating income of $49 million for the quarter increased 58 percent from $31 million in the first quarter of 2003, due to increasing contributions from support services, higher volume and a lower cost structure.
NCR has seen some signs that companies are beginning to relax constraints on capital spending for investments, such as data warehousing, which deliver significant return on investment. Companies are recognizing a growing need for enterprise analytics and are installing and upgrading Teradata(R) data warehouses to better understand their businesses and optimize their financial results.
Financial Self Service:
11 percent revenue growth leads to 3 points of operating margin expansion
The Financial Self Service segment generated record first-quarter revenue of $251 million, up 11 percent from the year-ago period. First-quarter revenue growth included a year-over-year benefit of 7 percentage points from foreign currency fluctuations.
Operating margin of 7 percent improved from 4 percent in the first quarter of 2003 due to higher revenue and the favorable impact from currency translation.
As a result of regulatory changes, increased automated teller machine (ATM) upgrade and replacement activity is likely over the next several years as financial institutions install new-generation modular ATMs that can facilitate automated check and cash deposit. These new deposit-capable ATMs should allow banks to reduce check-processing and transport costs, providing very attractive return on investment for the banks and added convenience for their customers.
Retail Store Automation:
11 percent revenue growth and better cost management generates operating improvement
For the first quarter of 2004, Retail Store Automation generated $165 million in revenue, up 11 percent from $149 million in the first quarter of 2003. First-quarter year-over-year revenue comparison for Retail Store Automation included a benefit of 5 percentage points from foreign currency fluctuations.
Retail Store Automation reduced its operating loss for the seasonally weak first quarter to $8 million, a $15 million improvement from the prior-year period. Operating results in the first quarter improved due to cost and expense reductions, the favorable impact from foreign currency fluctuations and higher volume.
Although retailers continue to limit their capital spending, several are installing NCR’s newest line of point-of-sale terminals and expanding their deployment of self-checkout systems.
Operational improvement offset by continued pricing pressure and exited businesses
Customer Services reported revenue of $446 million, roughly flat with the first quarter of 2003. However, the first-quarter year-over-year revenue comparison for Customer Services included a benefit of 6 percentage points from foreign currency fluctuations.
Customer Services reported an operating loss of $4 million in the quarter, a $7 million decline from the first quarter of 2003, due to pricing pressure and the continued decline in higher-margin revenue from exited businesses.
Improved operating results due to lower cost and overhead expense
Systemedia first-quarter revenue was $114 million, up 2 percent from the revenue generated in the year-ago period. The year-over-year revenue comparison for the first quarter included a benefit of 5 percentage points from foreign currency fluctuations.
Operating income improved to $2 million from the $1 million operating loss reported in the first quarter of 2003 as Systemedia continued to improve its operating leverage due to lower production cost and reduced overhead expenses.
Payment and Imaging:
As expected, lower revenue and profit in the quarter due to adverse timing of installations
Payment and Imaging generated $29 million in revenue during the first quarter, down 6 percent from the prior-year period. The lower revenue reflects the timing of installations, following fourth-quarter revenue growth of 24 percent. The first-quarter revenue comparison included a year-over-year benefit of 2 percentage points from foreign currency fluctuations.
During the quarter, Payment and Imaging generated $1 million of operating income, a decrease of $4 million from the first quarter of 2003. Profitability declined due to lower revenue, negative impact of currency translation and a continued mix shift from higher-margin check-transport technology to imaging-based solutions.
Other Income and Expense in the first quarter of 2004 netted $2 million of income, versus $5 million of expense in the prior-year period. In the first quarter of 2004, Other Income and Expense included a $4 million gain due to the company’s success in streamlining its real estate portfolio.
The weighted average number of basic shares outstanding decreased to 94.6 million in the first quarter of 2004 from 96.0 million in the first quarter of 2003, due to the company’s share-repurchase activity. During the first quarter of 2004, NCR repurchased approximately 2 million shares of NCR common stock for approximately $90 million, which more than offset option-exercise activity during the quarter.
The company’s tax rate of 27 percent for the first quarter was lower than anticipated due to higher profitability in certain foreign jurisdictions with carry-forward losses. The company now expects a 27 percent tax rate for the year.
NCR ended the first quarter with $666 million in cash and short-term investments, a slight decrease from the $689 million cash balance on December 31, 2003. Cash proceeds from real estate transactions were offset by NCR’s significant share-repurchase activity and cash used for capital expenditures during the seasonally weak first quarter. As of March 31, 2004, NCR had short- and long-term debt of $312 million versus $310 million on December 31, 2003.
NCR generated $9 million of cash from operations in the first quarter of 2004 versus $102 million in the same period in 2003. Capital expenditures in the first quarter of 2004 were $45 million compared to $62 million of capital expenditures in the year-ago period.
NCR used $36 million of cash for operations and capital expenditures in the first quarter of 2004 versus the $40 million of free cash flow generation in the year-ago period. The decrease in free cash flow resulted from the higher cash payout of prior-year bonuses which reflected the improved financial results in 2003 and the timing of inventories and receivables.
Assuming approximately $275 million of capital expenditures, NCR expects cash flow from operations less capital expenditures, or free cash flow, of approximately $100 million in 2004.
For the Three Months ended
Cash provided by
operating activities (GAAP) (1) $ 9 $ 102
Less capital expenditures for:
Net expenditures for
reworkable service parts 17 32
Expenditures for property,
plant and equipment 11 14
Additions to capitalized software 17 16
Total capital expenditures 45 62
Free cash flow (non-GAAP measure) (2) $ (36) $ 40
2004 Previous Increased
Second-Quarter 2004 Full-Year 2004 Full-Year
Guidance Guidance Guidance
————– ————– ————–
Total NCR 1-2 % Flat 1-2 %
Data Warehousing 0-5 % 3-5 % 3-5 %
Service 10-15 % 3-5 % 5-10 %
Automation (0-3) % Flat Flat
Customer Services (0-3) % (0-3) % (0-3) %
Systemedia Flat Flat Flat
Payment & Imaging (10-15) % (0-5) % (5-10) %
Other (20-25) % (20-25) % (20-25) %
Earnings per share –
GAAP(a) $0.15-$0.20 $0.85-0.95 $1.20-1.25
(a) Includes special items
About NCR Corporation
NCR Corporation (NYSE:NCR) is a leading global technology company helping businesses build stronger relationships with their customers. NCR’s ATMs, retail systems, Teradata data warehouses and IT services provide Relationship Technology solutions that maximize the value of customer interactions and help organizations create a stronger competitive position. Based in Dayton, Ohio, NCR ([www.ncr.com]) employs approximately 28,900 people worldwide.
For complete details on NCR’s latest performance visit CardData ([www.carddata.com]).