A large tax settlement drove up NCR Corp.'s earnings, but revenue for its automated teller machine business fell short of the company's guidance.
The Dayton, Ohio, company reported third-quarter earnings of $222 million Thursday, including a $137 million settlement of tax audits. Excluding the settlement, NCR's net income rose 93% from the same quarter last year, to $85 million.
Overall revenue rose 3%, to $1.5 billion.
Revenue from the ATM business also rose 3%, to $349 million, but that figure was about $9 million short of the low end of the company's guidance.
NCR's Teradata data warehousing business was the major growth driver; its revenue rose 16%, to $361 million. The business landed several customers, including Wachovia Corp. and the Swedish banking company Nordea Group.
Bill Nuti, who became NCR's chief executive officer in August, said during a conference call with analysts Thursday that its ATM business has struggled with weak sales and pricing pressure - the same issues that have dogged NCR's chief ATM rival, Diebold Inc.
NCR had expected banks to begin installing check-imaging technology in ATMs this year to take advantage of the Check Clearing for the 21st Century Act, which has prompted some banks to begin settling checks with images, he said. However, the transition has been slower than he expected, and the upgrade remains "still ahead of us," Mr. Nuti said.
He also said he was confident that banks "across the board" are committed to Check 21 technology, and that banks should begin ordering imaging equipment for ATMs late next year. Demand for the technology would continue through 2008, he said.
Mr. Nuti succeeded Mark Hurd, who left to become the CEO of Hewlett Packard Co. in March. Before that Mr. Nuti was the CEO of Symbol Technologies Inc., the Holtsville, N.Y., maker of bar-code scanners and mobile computers.
Demand has slowed for ATMs that comply with the Triple DES encryption standard and the Americans With Disabilities Act, as well as for the equipment needed to upgrade machines to comply with those rules, Mr. Nuti said.
However, he expects to keep receiving orders for Triple DES equipment next year, because only 65% of U.S. banks are expected to be compliant with Triple DES requirements by the end of this year. (MasterCard International has required all banks to be Triple DES compliant by then.)
ATM pricing pressure, especially in India and China, also contributed to NCR's revenue shortfall, Mr. Nuti said.
In its own earnings report Wednesday, Diebold said that weak sales to U.S. regional banks drove down its ATM revenue but were partly offset by strong demand in Latin America. Diebold's ATM sales fell 2.9% from a year earlier, to $194 million.
Kartik Mehta, an analyst for First Horizon National Corp.'s FTN Midwest Research Securities Corp., said that one of the reasons NCR's ATM business fared better than Diebold's is that the two companies have different regional strengths.
Last year the U.S. regional market was very strong, because of Triple DES upgrades, and that market had cooled considerably this year, he said.
"Diebold has a greater market share in the U.S. market," Mr. Mehta said. "NCR has a much greater market share in Europe. Europe didn't slow at the same pace that the U.S. did."
