Business News

Pitney Bowes Announces Fourth Quarter and Annual Results for 2009

Friday 05. February 2010 - Pitney Bowes Inc. (NYSE:PBI) today reported 2009 fourth quarter and full year 2009 results.

Adjusted earnings per diluted share from continuing operations for the fourth quarter was $0.64 compared with $0.77 for the prior year. For the full year 2009, adjusted earnings per diluted share was $2.28 compared with $2.78 for the prior year.

On a Generally Accepted Accounting Principles (GAAP) basis, the company reported earnings per diluted share of $0.47 for the fourth quarter, compared with $0.36 per diluted share for the prior year and $2.04 for the full year compared with $2.00 for the prior year. GAAP earnings per diluted share for the quarter included an $0.11 charge for restructuring costs associated with the company’s strategic transformation initiatives; a $0.01 benefit related to certain leveraged lease transactions in Canada and a $0.06 loss associated with discontinued operations. GAAP earnings per diluted share for the year included a $0.15 charge for restructuring costs associated with the company’s strategic transformation initiatives; a non-cash net tax adjustment of $0.05, primarily associated with out-of-the money stock options that expired during the year and a $0.04 loss associated with discontinued operations.

Revenue for the quarter was $1.5 billion, a decline of 6 percent compared with the prior year, while on a constant currency basis revenue declined 9 percent. For the full year, revenue was $5.6 billion, a decline of 11 percent when compared with the prior year. Excluding the effect of currency during the year, revenue declined 9 percent.

Free cash flow was $223 million for the quarter and $889 million for the year. On a GAAP basis, the company generated $94 million in cash from operations for the quarter and $826 million for the year, which was partially used to reduce debt by $242 million during the year.

Free cash flow for the year benefited from lower levels of receivables and inventory as well as reduced capital expenditures. The company returned $74 million of dividends to common shareholders during the quarter and $298 million for the year.

The company’s results for the quarter and the year are summarized in the table below:


Fourth Quarter* Full Year 2009
Adjusted EPS $0.64 $2.28
Restructuring ($0.11) ($0.15)
Tax Adjustments $0.01 ($0.05)
GAAP EPS from Continuing Operations $0.54 $2.08
Discontinued Operations ($0.06) ($0.04)
GAAP EPS $0.47 $2.04

*The sum of the earnings per share does not equal the totals above due to rounding.

Commenting on the quarter and the year, Chairman, President and CEO Murray D. Martin noted, “In 2009 we took definitive actions to position ourselves for long-term growth, while addressing the immediate challenges presented by an uncertain business environment.

“Throughout the year we enhanced productivity, reduced expenses, and increased the variability of our cost structure, all of which helped to offset the impact of revenue declines driven by macroeconomic conditions, and produced year-over-year EBIT margin improvements in our Software, Management Services, Mail Services, and Marketing Services business segments. In addition in the fourth quarter we saw improvement in both revenue and EBIT margins in the majority of our business segments when compared with the prior quarter.

“Our free cash flow remained strong and we continued to take actions to improve our capital position and increase our liquidity, as we reduced our debt by $242 million for the year.

“For the 28th consecutive year our Board of Directors approved an increase in the quarterly dividend. The dividend for the first quarter 2010 will be $.365 per common share.

“As we exited 2009, we began to see some early signs of improved economic activity including an increased backlog of orders in our Production Mail business; increased solution sales activity during December in our U.S. Mailing business; and, a moderating decline in total U.S. mail volumes, especially for standard mail. Additionally, in our Software business we had an 11% increase in the billings for large transactions, many of which will be recorded as recurring revenue. In 2010, we will continue to expand our recurring revenue stream as we move more towards a ‘Software as a Service’ (SaaS) model.

“We are streamlining our operations which will position us to invest in areas of growth with processes and systems that will allow us to gain better leverage across our businesses. Given the actions we have taken to date, our planned transformation initiatives going forward, and an expected gradual improvement in global business conditions in the latter half of the year, we are reaffirming our financial guidance for 2010.”

Business Segment Results

Mailstream Solutions revenue declined 8 percent in the quarter to $1.0 billion with currency providing 3.6 percentage points of benefit to the change in revenue. Earnings before interest and taxes (EBIT) declined 15 percent to $268 million compared with the prior year.

Within Mailstream Solutions:

U.S. Mailing revenue declined 11 percent in the quarter to $499 million and EBIT declined 20 percent to $182 million when compared with the prior year.

The company maintained its focus on customer retention, as many customers continued to exercise their option to extend leases on existing equipment. The company experienced increased equipment sales activity in the month of December, particularly in its Solutions business. However, the lower levels of equipment sales in prior periods and the resulting lower level of finance receivables reduced revenue growth and profitability during the quarter and this trend is expected to continue into at least the first half of 2010.

International Mailing revenue declined 4 percent in the quarter to $241 million with currency providing about 10 percentage points of benefit to the change in revenue when compared with the prior year. EBIT declined 3 percent to $41 million.

While there appear to be some improving economic trends in Asia, Canada and parts of Europe, customers remained cautious and continue to take longer than usual to make purchase decisions and commitments. As in the U.S., the decline in high-margin finance and rental revenue streams, due to lower equipment sales in prior periods, reduced revenue and profitability during the quarter.

Worldwide Production Mail revenue declined 10 percent in the quarter to $160 million, with currency providing about 4 percentage points of benefit to the change in revenue, and EBIT declined 30 percent to $24 million compared with the prior year.

Production Mail has had three consecutive quarters of sequential EBIT margin improvement driven by ongoing productivity investments. During the quarter, Production Mail started to experience increased customer demand for its industry leading, high-speed inserting systems. As a result, Production Mail ended the quarter with an increased backlog of customer orders globally.

Software revenue increased one percent in the quarter to $105 million, with currency providing about 6 percentage points of benefit to the change in revenue, and EBIT increased 72 percent to $21 million compared with the prior year. EBIT margin reached 20 percent in the quarter, which was nearly double the prior year.

While Software typically has seasonally stronger fourth quarter sales, the company’s actions to integrate its sales organization and focus its product offerings have resulted in a greatly improved EBIT margin. This is the third consecutive quarter of sequential EBIT margin improvement. The company continues to expand its SaaS offerings and recurring revenue streams from term licenses. The company experienced increased customer interest in its data integration, document composition and location intelligence software products which resulted in an increase in the billings for large transactions.

Mailstream Services revenue declined 2 percent in the quarter to $450 million with currency providing 1.6 percentage points of benefit to the change in revenue and EBIT increased 15 percent to $48 million compared with the prior year.

Within Mailstream Services:

Management Services revenue declined 3 percent in the quarter to $271 million, with currency providing about 2 percentage points of benefit to the change in revenue, and EBIT improved 33 percent to $23 million compared with the prior year.

In the U.S., EBIT margin remained above 10 percent, slightly improved from the first three quarters of the year. Outside of the U.S., the company has refocused the business to more profitable contracts and continued to transition to a more variable cost structure. As a result, the non-U.S. Pitney Bowes Management Services (PBMS) operations improved revenue during the quarter and greatly expanded EBIT margin. The company’s strategy to move to a more variable cost infrastructure, that allows it to align costs with changing volumes, has resulted in three consecutive quarters of sequential EBIT margin improvement.

Mail Services revenue increased 2 percent in the quarter to $145 million and EBIT increased 2 percent to $19 million compared with the prior year.

Mail Services continues to process increasing volumes of presort mail from existing customers including a greater volume of Standard Class mail. An increase in outbound international package volume increased revenue for the International Mail Services portion of the business. While EBIT margin for the quarter was adversely affected by the timing of certain benefit costs, on an annual basis, the Mail Services EBIT margin for 2009 improved by 210 basis points when compared with the prior year due to ongoing automation and productivity initiatives.

Marketing Services revenue declined 3 percent in the quarter to $33 million and EBIT declined 2 percent to $6 million compared with the prior year.

On a year-over-year basis, revenue and EBIT were negatively affected by fewer household moves which resulted in a reduced need for change of address kits.

2010 Guidance

The company reaffirms its guidance for 2010. The company expects 2010 revenue to be in a range of flat to 3 percent growth, including an anticipated 2 percent benefit from currency. Adjusted earnings per diluted share is expected to be in the range of $2.30 to $2.50 for the year. Adjusted earnings per diluted share excludes the expected impact of $100 million to $150 million of pre-tax restructuring charges associated with the company’s previously announced transformation initiatives. Adjusted earnings per diluted share also excludes an expected non-cash tax charge of approximately 7 cents per diluted share associated with out-of-the-money stock options that expire principally in the first quarter of 2010. On a Generally Accepted Accounting Principles (GAAP) basis, the company expects 2010 earnings per diluted share from continuing operations in the range of $1.75 to $2.11. The company expects that a greater percentage of its annual earnings will occur in the second half of the year as equipment sales start to improve and the impact of lower financing revenue moderates, and the company realizes increased benefits from its transformation initiatives.

The company expects to generate free cash flow for 2010 in the range of $650 million to $750 million. During 2010 the company expects an increased investment in finance receivables through higher levels of equipment sales, requiring a higher use of cash versus the prior year.

The company’s expected earnings results for 2010 are summarized below.


Full Year 2010
Adjusted EPS $2.30 to $2.50
Restructuring ($0.32 to $0.48)
Tax Adjustment ($0.07)
GAAP EPS from Continuing Operations $1.75 to $2.11

Mr. Martin concluded, “Given the actions we have taken to date and the plans we have in place for 2010, we believe the company is positioned to take advantage of an improving business environment and generate increased growth and profitability in 2010 and beyond.”