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NCR Corp Q1 2010 Earnings Call Transcript

NCR Corp Q1 2010 Earnings Call Transcript

NCR Corp. (NCR)

Q1 2010 Earnings Call

April 22, 2010 4:30 pm ET


Gavin Bell - IR

Bill Nuti - Chairman, President and CEO

Bob Fishman - SVP, CFO and Senior Accounting Officer

John Bruno - EVP of Industry Solutions Group


Katie Huberty - Morgan Stanley

Gil Luria - Wedbush

Matt Summerville - KeyBanc

Robert Walker - Thomas Weisel Partners

Paul Coster - JPMorgan

Kartik Mehta - Northcoast Research

Zahid Siddique - Gabelli

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(Operator Instructions)

I would now like to turn the conference over to host Mr. Gavin Bell. Mr. Bell, please begin.

Gavin Bell

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Good afternoon and thanks everyone for joining us for our first quarter 2010 earnings call. Bill Nuti, NCR's Chairman and Chief Executive Officer will lead our conference call this afternoon. Please note that we have posted a presentation on the investor page of our website

and Bill will be referring to that presentation as part of his prepared remarks this afternoon. After Bill's opening remarks, Bob Fishman, NCR' Chief Financial Officer will provide comments on NCR's total company financial results. Also with us today is John Bruno, executive Vice president of our Industry Solutions Group. John will participate in the Q&A following the prepared remarks.

Our discussion today includes forecasts and other information that are considered forward-looking statements. While these statements reflect our current outlook, they are subject to a number of risks and uncertainties that could cause actual results to vary materially.

These risk factors are described in NCR's periodic filings with the SEC and our annual report to stockholders. On today's call, we will also be discussing certain non-GAAP financial information such as free cash flow, and the results excluding the impact of pension and other items.

Reconciliations to non-GAAP financial results to our reported and forecasted GAAP results, and other information concerning such measures are included in our earnings release and are also available on the investor page of our website.

A replay of this conference call will be available later today on our website. For those listening to the replay of this call, please keep in mind that the information discussed is as of April 22, 2010, and NCR assumes no obligation to update or revise the information included in this conference call, whether as a result of new information or future results.

With that, I will now turn the call over to Bill.

Bill Nuti

Thank you, Gavin and good afternoon and thank you all for joining us. NCR is of to a good start in 2010 as summarized by slide number three in the accompanying presentation on our website.

Our first quarter financial results were ahead of expectations and we are beginning to see signs of a slow but steady recovery in our core end markets. Our return to revenue growth, gross margin improvement, cost and expense reduction and significant NPOI, EPS and ex-pension growth were all positive indicators in the first quarter. This results are signals that we expect to be a return to growth company in 2010 and give us increased confidence in our outlook for full year revenue and operating earnings, which we are reaffirming today.

Returning NCR to growth is of course vital to building shareholder value, but so is addressing our pension liability and we are pleased to share with you today our strategy for addressing this issue. This road map is a result of a comprehensive analysis of our capital allocation strategy. We have chosen a three year aggressive yet balanced approach that we believe should enhance shareholder value. by significantly reducing the pension overhang on NCR’s equity valuation, while preserving our strategic and financial flexibility.

I will go through more detail on NCR’s pension situation and the specifics of our plan for addressing it after providing an overview of Q1 business results. However, I would like to say here that our goal is to substantially reduce the risk and volatility of our pension portfolio.

We committed to our investors that we would come to you with a game plan and the one we will present in our view is a good plan that is reasonable yet aggressive, but achievable and meaningful.

To summarize, our first quarter performance on the next slide, revenue grew 2% to $1.03 billion. Gross margin improved a 120 basis points year-over-year and excluding the investments in our Entertainment business, gross margin would have improved 190 basis points.

Non-pension operating income or NPOI grew 54% year-on-year to $43 million and earnings per share excluding pension expense more than doubled to $0.15 from $0.06 in last year’s first quarter.

Customer activity is picking up both in retail and financial services sectors, as evidenced by strong order growth and an improved backlog. This building a backlog was driven by an 18% increase in orders including balanced double-digit order growth in financial and retail.

We also continue to make good progress in improving our cost structure due to our focus on initiatives targeted at sustainable productivity growth. As a remainder, we are targeting $75 million to $100 million in gross cost reduction during 2010. About half of which will be reinvested in the business with the remainder dropping to the bottom line.

Our efforts to promote the efficiencies across our operations and drive productivity will further strengthen our financial position.

Our balance sheet remains strong as we ended the quarter with $408 million of cash on hand and only $11 million of debt.

Looking at our businesses in greater detail, the big headline is that both financial and retail sales volumes demonstrated overall improvement. In financial services, the upgrade cycle with several of our large US customers is reaching its conclusion in 2010. This is no surprise and it’s factored into our outlook for the year.

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