The Lato Letter: Volume 2, Issue 10.

The Lato Letter: Volume 2, Issue 10.

NCR Corp. (NCR-NYSE,$34.76) was added to the Padlock portfolios several months ago. The stock has performed very well since then and this week’s Barron’s provided a little icing on the cake by featuring its president, Bill Nuti, in its CEO profile.

The article details NCR’s transformation from a cash register company to an electronic services provider and Mr. Nuti’s role in that transformation. Here’s the article:

Saturday, July 13, 2013

(c) 2013, Dow Jones & Company, Inc. All Rights Reserved

Barron’s Online

Restoring NCR’s Ka-ching!

By Dyan Machan

Even by the rough-and-tumble standards of the Bronx, William Nuti was a clever and resourceful kid. As a nine-year-old newspaper boy in New York City’s northernmost borough, Nuti would work his way up an apartment building until he got to the roof. Then he would leap to the roof of the adjacent building, and work his way down again.

Nuti’s Batman-like days might be over, but the same problem-solving instincts have served him well in the corporate world. As chief executive since 2005 of NCR (ticker: NCR), he has helped reinvent the company once known as National Cash Register, or “The Cash,” for the digital-commerce age.

Founded in 1884 in Dayton, Ohio, NCR is No. 1 in automated teller and self-service checkout machines, and No. 2 in point-of-sale kiosks. The company is organized into four divisions—financial services, retailing, hospitality, and emerging industries—and deserves the public’s everlasting thanks for helping to boost efficiency and speed lines at banks, retail outlets, hotels, airports, car-rental counters, and the like.

Nuti’s 79-year-old father, for one, isn’t stinting in his praise. He recently used an NCR kiosk at a Southwest Airlines terminal for the first time, and reportedly told his son, “I now know what you do, and I think you are going to be a huge success.”

NCR’S SUCCESS—and its very survival—were far from assured in the late-1960s, when Japanese companies first introduced digital cash registers. The company stuck to its electromechanical guns, and by 1971 its machines were practically relics. Management cut 30,000 employees that year, and subsequently sought other paths to glory, including ill-fated forays into mainframe computers and servers.

AT&T (T) snapped up NCR in 1991, and spun it out as a separately traded company in 1997.

When Nuti, 49, joined NCR as CEO in 2005, after successful stints at Cisco Systems (CSCO) and Symbol Technologies, the company had sluggish ATM and point-of-sale businesses, and a thriving data-warehousing unit, but minimal top-line growth in the prior eight years. The previous CEO, Mark Hurd, who later resigned as head of Hewlett-Packard (HPQ) amid questions about his expense accounts, had cut costs not just to the bone but “the vital organs,” says Nuti. “There was nothing left to cut.”

Worse, a monster pension liability was lurking. After the financial crash in 2008, it had become dangerously unfunded and threatened to derail NCR’s future plans. “It was life-threatening,” Nuti says.

The new boss recognized that he would have to de-fang the pension threat and exploit new technologies in cash transaction to get the company back on track. In 2007 he spun off Teradata (TDC), NCR’s data-warehousing business and cash cow, in a move that raised eyebrows among board members but has rewarded shareholders handsomely. He also moved NCR’s headquarters to Atlanta and New York to facilitate executive recruitment, a move that riled Ohio politicians.

Nuti closed an archaic manufacturing plant in Scotland and built six new facilities—in Brazil, Hungary, India, China, and Columbus, Ga. In addition, he led the company’s expansion into the hospitality and retail markets with the purchase of transaction-technology leaders Radiant and Retalix. At the same time, he shifted NCR’s focus away from manufacturing and toward the higher-margin software and services businesses critical to digital transactions and mobile commerce. AS FOR THE LEGACY pension problem, Nuti offered some former employees lump-sum payouts, and reduced uncertainty by reinvesting assets in less-volatile fixed-income securities. The pension plan’s unfunded deficit totaled $440 million in the first quarter, down from $1.35 billion at its peak in 2011. “Our biggest issue is now a nonissue,” he says.

Nuti continues to grapple with another inherited liability—environmental remediation at a contaminated Fox River, Wis., manufacturing site, which is costing NCR $40 million a year. But he hopes to limit the company’s exposure via a settlement or court ruling.

Meanwhile, NCR’s core ATM business is benefiting from a wave of upgrades to video-teller machines and terminals that can handle most teller activities. The company also has launched NCR Silver, a cloud-based small-business tool that allows merchants to process credit-card sales, track inventory, and manage customer relationships via mobile devices. Although NCR Silver is entering a crowded field, it is helping the company win back the Mom-and-Pop merchants it once used to own.

The Nuti family recently visited a Boston deli whose owner used NCR Silver on an iPad. To Nuti’s delight, the merchant later solicited his feedback via the system, and then sent him a coupon for a second breakfast of an egg-white omelet, hash browns, and orange juice.

NCR’s financial performance has improved markedly as a result of Nuti’s turnaround efforts. Revenue has grown 22% since 2010, while operating earnings per share have jumped 63%. The company expects to earn $457 million, or $2.75 a share, this year, on revenue of $6.3 billion, with earnings rising to nearly $4 a share, and revenue to $7.5 billion, in 2015.

Shareholders have been big winners, too. Although NCR’s shares, at $35, trade today about where they stood when Nuti took the reins, the total return to investors, including the Teradata spinoff, is 172%. Shares are up 50% since Barron’s penned a positive piece on the company a year ago (“Tech You Can Take to the Bank,” July 16, 2012).

NUTI DIDN’T HAVE CEO role models while growing up in the Bronx. His father drove a truck for a uniform company, and his mother worked at a bank. “When we heard ‘chief’ and ‘officer’ in the same sentence, someone was being chased by the cops,” says Larry Estridge, his best friend from childhood and a regional vice president for Ameritas Life Insurance.

Nuti’s and Estridge’s mothers, one Italian-American and the other African-American, were best friends whose sons shared a playpen while the two women talked and smoked. Later the boys would engage in Dennis the Menace-type escapades; they were both punished once for poking pinholes in their mothers’ cigarettes.

The neighborhood grew increasingly dangerous as Nuti reached his teenage years, and at the age of 14 he was sent to live with his grandmother and her new well-to-do husband in Huntington, on Long Island. He recalls the move as “the single most important moment” in his life, as his step-grandfather took a special interest in the awkward boy with the funny haircut, unfashionable jeans, and thick Bronx accent.

“My step-grandfather was the antithesis of what I knew as the human condition,” says Nuti, “He was a classy, elegant person who got up every day and put on a suit and tie.” Although he was an immigrant from Italy, the man spoke perfect English, and taught Nuti to drop his accent. He also taught him about a work ethic, frugality, and stocks. “He bought me 88 shares of Marathon Oil,” Nuti says. “My parents could barely buy food.”

After graduating from high school in Huntington, Nuti entered Long Island University. A participant in the school’s co-op, or cooperative-education program, he began working for International Business Machines (IBM) in nearby Jericho, N.Y. Even as a part-timer, he became No. 1 in the U.S. in 1983-’84 copier sales. Nuti sought advice from the top mainframe salesman in the office, who became a mentor, taking him on sales calls and eventually giving him leads.

FROM IBM, NUTI moved on to other technology companies, including Rolm, Network Equipment Technologies, and Cisco, with progressively more lucrative commission plans. It was never just about “sales,” he says, but about nurturing customers with whom he stayed in contact. At Rolm, he sold PBX phone systems to his former IBM copier customers. Later, he sold them Cisco routers.

In addition to building relationships, he burned the midnight oil. “No one was going to outwork me,” Nuti recalls. “I was the one doing handwritten notes at 10 p.m., or going over the RFP [request for proposals].”

In 2002, Nuti left Cisco to become COO, then CEO, of Symbol Technologies, whose then-“minor issues” involving accounting irregularities in fact masked a much larger fraud. “I was scared straight as CEO,” he says.

Eventually 11 company executives were charged with fabricating earnings, among other crimes, and the prior CEO fled to Sweden to escape charges. Nuti was left to mop up the mess. “I tore the company down to its knees and rebuilt it,” he says.

Sixty-five percent of the management team turned over, along with the entire board. Symbol was forced to restate five years of results—that’s one more than Enron—before it was sold to Motorola in 2007.

Yet, the scar tissue he developed at Symbol gave Nuti the courage to plunge in at NCR. With the company’s “reinvention,” as he calls it, under way, NCR is keeping a big foot in the ATM world. The hardware business still accounts for 40% of sales, and is expected to grow by 3% to 5% a year. But software-related services, most with recurring sales, now contribute 50% of revenue.

WHILE OTHERS PROCLAIM the imminent death of cash, Nuti expects cash machines and the bills they dispense to be around for a long time. He notes that even with the growth of plastic, PayPal, and newer transaction systems, cash use as a percentage of transactions, now in the mid-80% range, is declining at a rate of just 1% a year.

Moreover, there is plenty of room for ATM growth overseas. In developed countries, there are 1,450 ATMs per million people. But in India, there are 80 per million, says Meghna Ladha, an analyst at Susquehanna International.

India has become an important market for NCR, which generates 62% of its revenue overseas. Last year an anonymous whistleblower accused the company of violating a U.S. embargo by doing business in Syria, but after notifying regulators and conducting its own investigation, NCR concluded the alleged activity stemmed, in Nuti’s words, from “an unfortunate administrative error” in registering, and deregistering, its Syrian division. No charges have been filed.

NCR’s chief still walks around with bills in his pocket, and views consumers of his generation as digital immigrants, as opposed to the “digital natives” of his teenage son’s generation. Bridging the divide, and serving the growing needs of the natives as they mature, ought to keep Nuti, and NCR, plenty busy in coming years.

E-mail: editors@barrons.comeditors@barrons.com

This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change without notice.

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