Business News

Pitney Bowes Announces Fourth Quarter and Annual Results for 2008

Monday 09. February 2009 - Pitney Bowes Inc. (NYSE:PBI) today reported 2008 fourth quarter and annual financial results.

Adjusted earnings per diluted share for the fourth quarter increased 8 percent to $.77 from $.72 for the prior year. Adjusted earnings per diluted share for the year increased 2 percent to $2.78 from $2.72 for the prior year, and was within the company’s annual guidance of $2.75 to $2.82. Adjusted earnings per diluted share for the quarter and the year excludes pre-tax charges related to restructuring initiatives; impairments of certain intangible assets; and tax adjustments related primarily to deferred tax assets associated with certain U.S. leasing transactions. Adjusted earnings per diluted share also exclude losses from discontinued operations for the quarter and for the year.
On a Generally Accepted Accounting Principles (GAAP) basis, the company reported earnings per diluted share of $.36 for the fourth quarter, compared with a loss of $.27 per diluted share for the prior year. Earnings per diluted share for the year on a GAAP basis increased 21 percent to $2.00 from $1.66 for the prior year.
The company’s adjusted income from continuing operations was $160 million for the quarter and $583 million for the year. On a GAAP basis, the company reported net income for the quarter of $74 million and $420 million for the year.
Revenue for the quarter was $1.6 billion, a decline of 7 percent compared with the prior year driven primarily by currency. On a constant currency basis revenue declined less than 2 percent. For the full-year, currency had a nominal impact on revenue which increased 2 percent to $6.3 billion, and was within the company’s guidance range of 2 to 4 percent.
The company’s results for the quarter and the year are further summarized in the table below:
Fourth Quarter* Full Year 2008
Adjusted EPS $0.77 $2.78
Restructuring & Asset Impairments
($0.40)


($0.69)

Tax Adjustments $0.07 $0.04
GAAP EPS from Continuing Operations $0.45 $2.13
Discontinued Operations
($0.09)


($0.13)

GAAP EPS $0.36 $2.00

*The sum of the earnings per share does not equal the totals above due to rounding.
Free cash flow was $235 million for the quarter and $888 million for the year. This compares with the company’s guidance that free cash flow would be in excess of $800 million for the year.
On a GAAP basis, the company generated $249 million in cash from operations for the quarter and $990 million for the year.
During the quarter, the company used $72 million of cash for dividends and did not repurchase any of its shares. For the year, the company returned $292 million to shareholders through dividends and repurchased $333 million of its shares. The company still has $73 million of authorization remaining for future share repurchases.
Commenting on the quarter and the year, Chairman, President and CEO Murray D. Martin noted, “I am very pleased with the way our company performed during one of the most turbulent economic environments in recent history. On a full-year basis we generated robust cash flow, increased revenue, and grew adjusted EPS in line with current guidance. We believe these results were even more notable given the impact of currency. Significant currency fluctuation, particularly the strengthening of the U.S. dollar, reduced our earnings per share by five cents for the year, when compared with the original guidance we provided at the beginning of 2008.
“Our results highlight the resiliency of our business model, our disciplined focus on cash generation, and the execution of our restructuring initiatives. In late 2007, we initiated aggressive actions that we continued throughout 2008 to reduce our cost structure, streamline our operations and enhance our customer experience. The results of these actions can be seen in improving gross margins across nearly all our revenue streams, as well as improving EBIT margins in many of our business segments. Our enhanced actions in the fourth quarter 2008 will strengthen our ability to manage through the uncertainties and maximize the benefits of future economic recovery.
“In addition, we also took steps to further improve our capital position and increase our liquidity during these uncertain times. During the fourth quarter, we reduced our debt by $220 million, providing additional capital capacity. Throughout the year we maintained a strong investment grade credit rating for our debt and as a result, we continued to have unencumbered access to the commercial paper market.
“We will continue to invest in developing new products and services, enhancing our customer experience, and improving our business processes with the expectation that our business model will continue to generate substantial free cash flow in 2009. For the 27th consecutive year, our Board of Directors approved an increase in the quarterly dividend. The dividend for the first quarter will increase 3 percent to $.36 per common share.”
Business Segment Results
Mailstream Solutions earnings before interest and taxes (EBIT) declined 3 percent to $317 million while revenue decreased 9 percent to $1.1 billion, when compared with the prior year.
Within Mailstream Solutions:
U.S. Mailing EBIT as a percentage of revenue improved to 41.2 percent from 40.4 percent, because of the ongoing actions the company has taken to reduce costs and streamline operations. EBIT declined one percent to $228 million as a result of the decline in revenue of 3 percent to $554 million. U.S. Mailing had a 6 percent increase in equipment sales revenue, versus the prior year, as it started to benefit from the anticipated higher number of customers with leases becoming available for renewal and upgrade. This growth was offset by lower financing revenue, meter rentals, and supplies sales resulting from lower equipment sales over the last year as well as the slowing economy.
International Mailing EBIT as a percentage of revenue improved to 16.8 percent from 15.0 percent, because of actions taken over the past two years to reduce costs through the outsourcing of manufacturing and the consolidation of back office operations. EBIT declined only 8 percent to $42 million on a currency-driven revenue decline of 18 percent to $252 million. Unfavorable currency translation caused 15 percentage points of the revenue decline for the quarter. Acquisitions added about one percent to revenue growth. On a local currency basis, there was positive revenue growth in Latin America, France, and Germany. Worsening economic conditions resulted in a decline in revenue in the UK, Canada and Asia Pacific.
Worldwide Production Mail EBIT as a percentage of revenue improved to 19.4 percent from 16.3 percent, because of ongoing actions to reduce administrative costs and improve gross margins. These actions were part of the company’s aggressive restructuring initiatives implemented in anticipation of a slowing capital investment environment. EBIT increased 8 percent to $34 million while revenue declined 10 percent to $177 million, of which 6 percentage points pertained to unfavorable currency translation. The company continued to see strong demand in the UK, France and Canada for its high-speed, intelligent inserting systems. Sales in the U.S., other parts of Europe and Latin America slowed as large enterprises curtailed their big-ticket capital expenditures due to ongoing credit constraints and global economic uncertainty.
Software EBIT as a percentage of revenue declined to 11.9 percent from 17.2 percent, primarily because of lower revenue, product mix and the planned investments in the expansion of the distribution channel and globalization of the company’s research and development infrastructure. EBIT declined 38 percent to $12 million and revenue declined 11 percent to $104 million. Unfavorable currency translation caused 9 percentage points of the revenue decline and acquisitions added about 5 percentage points to revenue growth for the quarter. Consistent with the behavior noted in other businesses, there were fewer large-ticket licensing deals than the prior year as customers assessed the overall business environment.
Mailstream Services reported a decline in EBIT of 5 percent to $40 million and a decline in revenue of 2 percent to $466 million, when compared with the prior year.
Within Mailstream Services:
Management Services EBIT as a percentage of revenue declined to 6.1 percent from 7.2 percent, primarily because of the decline in revenue during the quarter. In the U.S., despite declining transaction volumes, EBIT as a percentage of revenue improved by 70 basis points to more than 12 percent. This was a result of reducing the fixed cost structure of the business. For Management Services businesses outside the U.S., lower print and transaction volumes, particularly in the UK and Germany, resulted in a decline in EBIT. In aggregate EBIT for the segment declined 22 percent to $17 million and revenue declined 9 percent to $281 million. Unfavorable currency translation caused about 4 percentage points of the revenue decline for the quarter.
Mail Services EBIT increased 6 percent to $19 million and revenue increased 19 percent to $142 million. Unfavorable currency translation reduced revenue growth by about 1 percentage point, while acquisitions added about 14 percentage points to growth for the quarter. Solid growth in the volume of mail processed contributed to underlying revenue growth. EBIT as a percentage of revenue declined to 13.4 percent from 15.0 percent. As has been the case in past expansion periods, the benefits from operating leverage were temporarily offset by the integration costs associated with acquisitions in the U.S. and UK earlier in 2008. Excluding these sites, EBIT margin would have improved 80 basis points to 15.8 percent. The company expects positive EBIT margin contributions from the acquired sites in 2009 as they become fully integrated.
Marketing Services EBIT as a percentage of revenue improved to 9.9 percent from 5.2 percent, because of the strong performance of the postal change of address marketing program. EBIT as a percentage of revenue also benefited from cost reduction initiatives and the exit from the company’s motor vehicle registration services program. EBIT increased 73 percent to $4 million while revenue declined 8 percent to $43 million.
2009 Guidance
The company’s recurring revenue model, as well as the actions the company has taken to significantly reduce costs and streamline its operations, help mitigate, but do not eliminate the effects of prolonged global economic weakness and unanticipated currency fluctuations. Two external factors in particular, the strengthening of the U.S. dollar and the Japanese yen last year and the significant increase in pension costs related to recent changes in financial markets and interest rates, will impact 2009 reported results.
Given the uncertainty and volatility that characterizes today’s markets, the company is providing a wider range of guidance than it has historically. The guidance presumes no significant changes in foreign currency exchange rates or interest rates from their current levels.
On a constant currency basis, the company expects 2009 revenue in the range of 1 percent growth to a decline of 2 percent. On a reported basis, the company expects revenue in the range of a decline of 4 percent to 7 percent, which includes an estimated negative 5 percent impact from currency when compared with 2008.
The company expects adjusted earnings per diluted share from continuing operations for the year will be in the range of $2.55 to $2.75. Adjusted EPS would grow in the mid-single digit range compared with 2008, excluding an estimated negative impact of $.30 to $.35 per diluted share from currency and incremental pension expense.
On a GAAP basis, the company expects earnings per diluted share from continuing operations for the year will be in the range of $2.49 to $2.69. GAAP earnings per diluted share from continuing operations will include approximately 6 cents per share related to a non-cash tax charge associated with out-of-the-money stock options that expire principally in the first quarter of 2009.
The company also expects to generate free cash flow in a range of $700 million to $800 million for the year.
Mr. Martin concluded, “While no one can predict with any certainty what the future will bear and when the economy will improve, our business model and the actions we have taken position us well to weather these uncertain times and, as conditions improve, to continue to lever our actions for strong profitable growth.”