Article

NCR Q1 earnings hampered by currency exchange headwinds

In its first earnings call of the year, NCR faulted foreign currency exchange for a revenue miss — and forecast continuing ill winds for FX during 2015.

April 29, 2015 by Suzanne Cluckey — Owner, Suzanne Cluckey Communications

To listen to NCR Corp. President and CEO Bill Nuti describe the company's revenues in the first quarter of 2015 is to get the strong message: "Foreign currency exchange is not our friend right now."

Nuti said as much — if not in so many words — during the company's 2015 Q1 earnings call, which took place Tuesday after the closing bell on Wall Street. 

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"We faced increasing foreign currency headwinds as the quarter progressed, which negatively impacted revenue by an additional 1 percent and [nonpension operating income] by an additional $8 million vs. the guidance we provided on our Q4 call," he told financial analysts on the call.

The company's as-reported financial results for Q1 2015 came up negative across the board, compared with earnings from the first quarter of the previous year. 

Top line revenue compared unfavorably to the previous quarter, as well — $1.476 billion compared with $1.768 billion in Q4 2014. Earnings in Q4 suffered from a constant currency differential of 5 percent.

The company had forecast that impact to revenues from FX would continue at the 5 percent rate, however, the gap widened further to 6 percent in Q1.

It did not help that as-reported earnings in all but the company's financial services division fell into the flat-to-negative range — expecially retail solutions, which sat at -9 percent revenue year-over-year. However SVP and CFO Robert Fishman said the company expected to see improving results in the second half of the year.

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"We had positive order momentum in Q1 as evidenced by a number of key customer wins," he said. "We continue to see improving demand for our omnichannel and self-checkout solutions; we had a significant service win in Q1 resulting from our strong customer services execution."

Financial services managed to eke out a 1 percent gain in as-reported revenues, which Nuti credited to the increasing demand for omnichannel retail banking solutions.

"Our omni-channel solution portfolio continues to generate higher and differentiated demand vs. traditional ATM hardware suppliers," he said. "[W]e're beginning to see a meaningful shift in customer decision processes and buying criteria more towards financial technology companies [that] deliver omnichannel solutions vs. point products."

Nuti said that FIs are looking to branch transformation to improve revenue, increase fixed-cost productivity and improve the customer experience. He added that the company continues to see strong growth in its digital banking offerings, "driven primarily by an increase in mobile users."

These software-dependent developments pushed sales of NCR software solutions to a new high of $149 million, a 1 percent improvement over the same period in 2014, with $147 million in software revenues.

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Cloud computing, which the company previously labeled as "software as a service," also showed a strong performance, rising by 19 percent from $113 in Q1 2014 to $134 in Q1 2015.

At the same time, hardware sales dropped 5 percent year-over-year on an as-reported basis and, even in constant currency, rated a bland improvement of 1 percent over Q1 2014.

Like its European competitor Wincor Nixdorf AG, NCR has set its cap at omnichannel retail banking, concluding that it represents the best growth opportunity.

The company is dedicating considerable focus and financial resources toward winning new business (in both financial and retail verticals) in the higher-margin categories of software and services that support the e-centric "omnichannel customer experience."

And, in a notable reversal of cart and horse, the company now appears to be looking to software to push its hardware sales, its newly released Kalpana solution being the prime example. The multivendor thin client platform is used to greatest advantage with NCR Cx110 ATMs.

"Kalpana is a game-changing innovation for financial institutions," Nuti said during the call. It might be a game-changer for NCR, as well, if it were to prove itself able to overcome the persistent headwinds in 2015. 

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About Suzanne Cluckey

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Suzanne’s editorial career has spanned three decades and encompassed all B2B and B2C communications formats. Her award-winning work has appeared in trade and consumer media in the United States and internationally.