Pitney Bowes Inc. (NYSE:PBI) today reported first quarter 2012 results.
Revenue for the quarter was $1.3 billion, which was a decline of 5
percent when compared to the prior year. Excluding the impacts of
currency movements, the revenue decline was 4 percent. Revenue for the
quarter benefited from growth in the Software and Mail Services
segments. The company also experienced improving trends in equipment
sales in its Small and Medium Business Solutions (SMB) segments.
However, as previously discussed, there continued to be declines in the
SMB recurring revenue streams. Revenue was also adversely impacted by
weakness in the Production Mail and Management Services segments.
Earnings per diluted share for the quarter on a Generally Accepted
Accounting Principles (GAAP) basis was $0.79, an 87 percent increase
versus the $0.42 per diluted share for the prior year. GAAP earnings per
diluted share for the quarter included a $0.10 per share tax benefit in
discontinued operations, plus an $0.11 per share tax benefit in
continuing operations, resulting from the resolution of additional tax
matters with the IRS. GAAP earnings per diluted share for the quarter
also included a net $0.06 per share benefit from the sale of leveraged
lease assets in Canada. Excluding the tax benefits noted above, as well
as the sale of the leveraged lease assets, adjusted earnings per diluted
share for the quarter was $0.52, as detailed in the table below.
Free cash flow for the quarter was $211 million, while on a GAAP basis,
the company generated $96 million in cash from operations. In comparison
to the prior year, free cash flow was impacted by higher working capital
requirements, due to timing of disbursements; less of a benefit from
finance receivables; and higher capital expenditures. During the
quarter, the company used $75 million of cash for dividends and
contributed $95 million to its pension funds. The company also retired
$150 million of its term debt. The company did not repurchase any of its
shares this quarter.
Commenting on the quarter, Chairman, President and CEO Murray D. Martin
said, "During the quarter we reached several key milestones in the areas
of software and digital solutions that mark our progress in expanding
our value proposition beyond physical mail. As a result, we have decided
to increase our investments to bring these new solutions to market more
quickly to take advantage of emerging and growing opportunities.
"We are pleased to note that at the end of the quarter we signed a
multi-year agreement with Facebook to offer global geocoding, reverse
geocoding and other location intelligence applications / data for
integration into Facebook's applications and services. Our best of breed
technology will provide Facebook developers, and ultimately their users,
high-performance, high-precision location processing, across desktop,
laptop, tablet and mobile platforms. This is a great example of the
kinds of solutions Pitney Bowes is developing to help our customers
deliver more personalized, relevant communications to their customers.
"Our Volly™ secure digital mail delivery platform and our SMB customer
communications solutions are other examples of the solutions we are
increasing investment in and are deploying to help customers of all
sizes manage their communications in a changing communications
environment. In April, we announced a partnership in which Australia
Post will become the first national postal service to incorporate Volly
into its digital offerings. Australia Post delivers more than five
billion pieces of mail annually to more than ten million households. The
service will launch later this year. We continue to invest in Volly in
the U.S. as we move toward an initial consumer launch later this year.
"We achieved increased global sales of our Connect+™ product line in the
quarter, and are continuing to gain approval in key European markets. We
will also launch a small business cloud-connected metering solution this
month to web-enable more of our U.S. mailing customer base. We are also
partnering to integrate and expand our global ecommerce capabilities.
"We have a number of opportunities that we expect to be growth
contributors in the near future. We are stepping up our investment in
the second quarter to achieve our go-to-market goals. To pay for these
investments, we are expanding upon our productivity initiatives. We
believe that these actions will enable us to accelerate investments for
growth, while delivering expected earnings within our annual guidance
range, even in the current business climate."
Business Segment Results
The company reports its business segments in two groups based on the
customers it primarily serves: Small and Medium Business (SMB) Solutions
and Enterprise Business Solutions. The SMB Solutions group consists of
the company's global Mailing operations. The company aligns its SMB
business segments into North America Mailing and International Mailing
to reflect how the business is managed. North America Mailing includes
the operations of U.S. and Canada Mailing. International Mailing
includes all other SMB operations around the world. The Enterprise
Business Solutions group includes the company's global Production Mail,
Software, Management Services, Mail Services and Marketing Services
North America Mailing
During the quarter, the North America Mailing segment continued to
benefit from increased placements of its Connect+ mailing system and
improved retention rates among its existing customers. The company
experienced improved trends in equipment sales during the quarter as
more customers upgraded to new equipment in lieu of extending leases.
However, revenue was adversely impacted by lower rentals and financing
revenue as a result of lower equipment sales in prior periods. Revenue
was also impacted by a decline in supplies revenue due to fewer meters
in service in the U.S. and lower mail volumes. EBIT margin for the
segment improved by 330 basis points versus the prior year, which was
the seventh consecutive quarter of year-over-year improvement, due to
ongoing productivity improvements and lower credit losses.
International Mailing revenue grew one percent excluding the impact of
currency. Revenue benefited from increased equipment sales, especially
in France and the Nordics. The company's innovative Connect+ product
line was launched in Germany during the quarter and is expected to be
launched in France in the third quarter. The rate of decline for rental
revenue continued to improve year-over-year. Additionally, there was
growth in supplies revenue this quarter. EBIT margin declined
year-over-year due to the mix of business.
Enterprise Business Solutions
Worldwide Production Mail
Many large enterprise customers, across business sectors, continued to
prolong their capital investment decisions, and are retaining their
current equipment longer than in prior years. This has caused delays in
orders for inserting and production print equipment, especially in the
U.S., thus adversely impacting revenue. The company introduced several
new inserting products during the quarter, both at the high-end and
low-end of the market. Additionally in April, the company announced a
partnership with Australia Post for use of the Volly platform. In the
U.S., nearly 50 large third party mail service providers have now signed
to use the Volly service. These partners produce billions of statements
each year for more than 5,000 companies and consumer brands. EBIT margin
this quarter declined year-over-year due to lower revenue and the
planned investment in Volly. The company expects the investment in Volly
to increase as it brings this solution to market in both Australia and
the U.S. Excluding this investment, EBIT margin would have been
approximately 360 basis points higher.
During the quarter, the Software business experienced improved demand
across its portfolio of software solutions, especially in the Americas.
In particular, there was strong global demand for the company's
Spectrum™ address and data management platform. Our multi-year agreement
with Facebook for global location intelligence applications contributed
to revenue growth during the quarter and will generate recurring revenue
streams in future periods. Overall, the Software EBIT margin improved
versus the prior year because of margin leverage on revenue growth and
reduced costs associated with on-going productivity initiatives.
As expected, revenue for the quarter declined as a result of account
contractions and terminations in the prior year and pricing pressure on
contract renewals. However, the rate of decline in revenue this quarter
moderated versus the previous quarter as the company provides more
customized communications management solutions to its enterprise
customers. During the quarter, Management Services had improvement in
net new written business versus the prior year. EBIT margin declined due
to the lower revenue and price compression.
Mail Services revenue grew versus the prior year because of increased
presort mail volumes for standard mail and improved penetration in all
of the workshare discount categories. The company's presort network
continues to enhance its processing efficiency. EBIT margin benefited
from ongoing productivity initiatives and improved margins in the
International Mail Services portion of the business. EBIT margin also
benefited from an additional insurance reimbursement the company
received related to the fire at its Dallas presort facility last year.
Revenue grew due to an increased number of household moves this quarter
compared with the prior year. EBIT benefited from reduced print
production costs and ongoing productivity initiatives.
This guidance discusses future results which are inherently subject
to unforeseen risks and developments. As such, discussions about
the business outlook should be read in the context of an uncertain
future, as well as the risk factors identified in the safe harbor
language at the end of this release.
The company is updating its 2012 annual guidance for GAAP earnings per
diluted share from continuing operations to reflect the first quarter
net tax benefits plus the net benefit from the first quarter sale of
leveraged lease assets in Canada.
The company now expects GAAP earnings per diluted share from continuing
operations to be in the range of $2.22 to $2.42. This includes $0.11 per
share of net tax benefits and a $0.06 per share benefit from the sale of
leveraged lease assets in Canada. Excluding these two items, adjusted
earnings per diluted share from continuing operations for 2012 are still
expected to be in the range of $2.05 to $2.25.
The company still expects 2012 revenue, excluding the impacts of
currency, to be in a range of 2 percent growth to a decline of 2 percent
as compared to 2011, and expects free cash flow to be in the range of
$700 million to $800 million.
Management of Pitney Bowes will discuss the company's results in a
broadcast over the Internet today at 5:00 p.m. EDT. Instructions for
listening to the earnings results via the Web are available on the
Investor Relations page of the company's web site at www.pb.com/investorrelations.
Pitney Bowes is a $5.3 billion global leader whose products, services
and solutions deliver value within the mailstream and beyond. For more
information visit www.pitneybowes.com.
The company's financial results are reported in accordance with
generally accepted accounting principles (GAAP). The company uses
measures such as adjusted earnings per share, adjusted income from
continuing operations and free cash flow to exclude the impact of
special items like restructuring charges, tax adjustments, and asset
write-downs, because, while these are actual company expenses, they can
mask underlying trends associated with our business.
Such items are often inconsistent in amount and frequency and as
such, the adjustments allow an investor greater insight into the current
underlying operating trends of the business. The use of free cash
flow provides investors insight into the amount of cash that management
could have available for other discretionary uses. It adjusts
GAAP cash from operations for capital expenditures, as well as special
items like cash used for restructuring charges, unusual tax payments and
contributions to its pension funds. Management uses segment EBIT to
measure profitability and performance at the segment level. EBIT
is determined by deducting the related costs and expenses attributable
to the segment. Segment EBIT excludes interest, taxes, general
corporate expenses not allocated to a particular business segment,
restructuring charges, asset impairments, and goodwill charges which are
recognized on a consolidated basis. In addition, financial
results are presented on a constant currency basis to exclude the impact
of changes in foreign currency exchange rates since the prior period
under comparison. Constant currency measures are intended to help
investors better understand the underlying operational performance of
the business excluding the impacts of shifts in currency exchange rates
over the intervening period.
Pitney Bowes has provided a quantitative reconciliation to GAAP in
supplemental schedules. This information may also be found at the
company's web site www.pb.com/investorrelations
in the Investor Relations section.
This document contains "forward-looking statements" about our
expected or potential future business and financial performance. For us
forward-looking statements include, but are not limited to, statements
about possible transformation initiatives; our future revenue and
earnings guidance; and other statements about future events or
conditions. Forward-looking statements are not guarantees of future
performance and involve risks and uncertainties that could cause actual
results to differ materially from those projected. These risks and
uncertainties include, but are not limited to: the uncertain economic
environment, fluctuations in customer demand; mail volumes; foreign
currency exchange rates; the outcome of litigation; timely development,
market acceptance and regulatory approvals, if needed, of new products;
management of credit risk; management of outsourcing arrangements;
income tax or other regulatory levies; changes in postal regulations;
and the financial health of national posts; and other factors beyond our
control as more fully outlined in the company's 2011 Form 10-K Annual
Report and other reports filed with the Securities and Exchange
Commission. Pitney Bowes assumes no obligation to update any
forward-looking statements contained in this document as a result of new
information, events or developments.
Note: Consolidated statements of income; revenue and EBIT by business
segment; and reconciliation of GAAP to non-GAAP measures for the three
ended March 31, 2012 and 2011, and consolidated balance sheets at March
31, 2012 and December 31, 2011 are attached.
Less: Preferred stock dividends of subsidiaries
attributable to noncontrolling interests
Basic earnings per share of common stock attributable to
Common stockholders (1):
Diluted earnings per share of common stock attributable to
The sum of the earnings per share amounts may not equal the totals
above due to rounding.
Certain prior year amounts have been reclassified to conform to
the current year presentation.
(Unaudited: in thousands, except per share
Liabilities, noncontrolling interests and
stockholders' equity (deficit)
GAAP income from continuing operations
after income taxes, as reported
Income from continuing operations
after income taxes, as adjusted
GAAP diluted earnings per share from
continuing operations, as reported
Diluted earnings per share from continuing
operations, as adjusted
GAAP net cash provided by operating activities,
Note: The sum of the earnings per share amounts may not equal the totals
above due to rounding.
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