Business News

Pitney Bowes Announces First Quarter Results for 2010

Tuesday 04. May 2010 - Pitney Bowes Inc. (NYSE:PBI) today reported first quarter 2010 results.

Adjusted earnings per diluted share from continuing operations for the first quarter was $0.55 compared with $0.55 for the prior year. On a Generally Accepted Accounting Principles (GAAP) basis, the company reported earnings per diluted share of $0.38 for the first quarter, compared with $0.50 per diluted share for the prior year. GAAP earnings per diluted share for the quarter included a $0.07 charge for restructuring costs associated with the company’s strategic transformation initiatives; a non-cash tax charge of $0.04 associated with recently enacted health care legislation; a non-cash net tax charge of $0.04, primarily associated with out-of-the money stock options that expired during the quarter, and a $0.02 loss associated with discontinued operations.

Revenue for the quarter was $1.3 billion, a decline of 2 percent which included a 3 percent benefit from currency, compared with the prior year.

Free cash flow was $294 million for the quarter and on a GAAP basis, the company generated $306 million in cash from operations. During the quarter the company used $80 million of cash for dividends to stockholders and reduced debt outstanding by $122 million.

Free cash flow for the quarter benefited from reduced working capital requirements, lower capital expenditures, and lower finance receivables in the period.

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


First Quarter*
Adjusted EPS $0.55
Restructuring ($0.07)
Tax Charges ($0.09)
GAAP EPS from Continuing Operations $0.40
Discontinued Operations ($0.02)
GAAP EPS $0.38
*The sum of the earnings per share does not equal the totals above due to rounding.

Commenting on the quarter, Chairman, President and CEO Murray D. Martin noted, “Our performance this quarter reflects progress in our plans for growth, our intensified focus on distinct customer needs, and our efforts to transform our business. As a result we are reaffirming our revenue, adjusted earnings per diluted share and free cash flow guidance for 2010.

“Our recent investments in products and solutions that meet the unique needs of our key customer segments through state-of-the-art technologies and services are coming to fruition. The April launch of our Connect+ Customer Communications series is an example of how we will deliver a broader portfolio of business services to our mailing customers. Connect+ is the industry’s first web-enabled mailing system. Our ability to bring an expanding portfolio of mailing, shipping, marketing, and business services to our customers sets us apart from point-solution meter providers. We have begun a global roll-out of this professional mail solution with this U.S. launch.”

The company’s reported revenue trends continued to improve. Equipment sales and support services revenue improvements were driven by demand from enterprise customers globally. This was particularly evident within Production Mail, where increased demand late in 2009 and in the first quarter resulted in strong revenue growth. The company also experienced growing enterprise demand for its Mail Services and Software solutions.

The company noted there were some early signs of stabilization among its small to mid-sized customer base. Despite the pending launch of Connect+ in April, U.S. Mailing equipment sales during the quarter were essentially flat with prior year, reflecting continued improvement since the end of 2008. Consistent with the company’s expectations, mailing revenue and EBIT growth were down because of lower rental and financing revenue. The headwind created by the impact of reduced equipment sales in prior periods on financing and rental revenue will moderate as equipment sales performance improves.

The company continues to implement processes and systems to leverage its growth opportunities and address the needs of its distinct customer segments through its Strategic Transformation Program. The company is reducing its cost of doing business while investing in its future. As a result, gross margin improved year-over-year and there was a reduction in the absolute dollar levels of selling, general and administrative expense versus the prior year. The company’s adjusted EBIT margin improved as a result of six of seven business segments having year-over-year improvement in their EBIT margins this quarter.

Business Segment Results

Mailstream Solutions

1Q 2010 Y-O-Y Change Change ex Currency
Revenue $916 million (2%) (6%)
EBIT $223 million (3%)

Within Mailstream Solutions:

U.S. Mailing

1Q 2010 Y-O-Y Change Change ex Currency
Revenue $477 million (8%) (8%)
EBIT $171 million (10%)
U.S. Mailing experienced improving trends in equipment sales during the quarter, particularly in its Solutions applications for mid-and higher-volume mailers. Support services revenue, which is driven by equipment placements, also had improving trends in the quarter.

During the quarter, the segment’s revenue and EBIT were adversely affected by lower rental and financing revenue. The decline in financing revenue represents about half of the total year-over-year reduction. The lower financing revenue was due to reduced equipment on lease as a result of lower sales in prior periods and in part, was due to the company’s decision to manage credit risk by reducing the amount of credit available to customers. The company expects that growth in finance revenue will be driven by future equipment sales and greater credit utilization for the purchase of postage and related company products. Meter rental revenue declined as a result of fewer equipment sales and meter rental placements in prior periods.

International Mailing

1Q 2010 Y-O-Y Change Change ex Currency
Revenue $235 million (1%) (12%)
EBIT $ 37 million 20%
International Mailing was adversely affected by lower financing and rental revenue due to fewer equipment sales in prior periods. Timing of postal rate change revenue in France contributed about 3 percent to the revenue decline. Activity levels in several markets have been weak as continued economic and sovereign credit concerns have slowed recovery in Europe. As a result, many businesses, especially smaller businesses, remained cautious when making investment decisions about new equipment or services. However, the company experienced revenue growth in Germany where the economic situation is more stable. Despite the segment’s lower revenue during the quarter, International Mailing was able to significantly increase EBIT and EBIT margin when compared with the prior year because of ongoing initiatives to improve productivity and consolidate administrative functions.

Worldwide Production Mail

1Q 2010 Y-O-Y Change Change ex Currency
Revenue
$125 million
14% 10%
EBIT
$ 11 million
115%

During the quarter, Production Mail continued to experience increased global customer demand for its industry leading, high-speed inserting systems and related software. Demand was driven both by improving economic conditions in certain countries and the need by some customers to replace aging equipment. As a result, Production Mail again ended the quarter with a strong backlog of customer orders globally. The IntelliJet 30 Printing System that was recently launched added to backlog growth and is expected to contribute to revenue in the second half of 2010. Production Mail also had a significant improvement in EBIT versus the prior year because of positive leverage from revenue growth, enhanced by ongoing productivity initiatives.

Software

1Q 2010 Y-O-Y Change Change ex Currency
Revenue $ 79 million 5% (1%)
EBIT $ 4 million 66%
Software typically experiences lower revenue and EBIT in the first quarter of the year. Revenue was down only slightly in the quarter versus the prior year on a constant currency basis despite continued transition to annuity-based pricing for some solutions. Excluding the impacts of this transition, revenue growth would have improved 5 percent versus the prior year. The company’s actions to integrate its operations and focus its product offerings have resulted in an improved EBIT margin. The company continues to expand its SaaS offerings and recurring revenue streams from term licenses. Continued customer interest in its data integration, document composition and location intelligence software products resulted in an improved pipeline of deals for the quarter versus the prior year.

Mailstream Services

1Q 2010 Y-O-Y Change Change ex Currency
Revenue $432 million (2%) (4%)
EBIT $ 49 million 34%
Within Mailstream Services:
Management Services

1Q 2010 Y-O-Y Change Change ex Currency
Revenue $255 million (4%) (7%)
EBIT $ 20 million 47%


Net new contracts for the quarter improved versus the prior year. Net new contracts provide a measure of future annual revenue to be realized from new accounts. Revenue for the quarter was adversely impacted by account contractions and terminations in the U.S. during the prior year, stemming from recessionary pressures as well as lower print and copy volumes. Outside the U.S., where the company principally provides print and customer communication services to enterprise accounts, revenue growth resumed on higher volumes. EBIT margins improved globally versus the prior year, led by significant continuing margin improvement in Europe. Similar to the U.S., margin improvement in Europe was the result of the company’s focus on more profitable contracts, ongoing productivity initiatives, and a continued transition to a more variable cost structure.

Mail Services

1Q 2010 Y-O-Y Change Change ex Currency
Revenue $145 million 3% 2%
EBIT $ 24 million 31%
Mail Services continues to process increasing volumes of presort mail from existing customers and continues to diversify its mix of mail through growing Standard Class volumes. Its overall volume increases were driven in part by its unique ability to help mailers benefit from the discounts available when properly utilizing the Intelligent Mail Barcode. Ongoing automation and productivity initiatives helped Mail Services improve its EBIT margin by 360 basis points when compared with the prior year.

Marketing Services

1Q 2010 Y-O-Y Change Change ex Currency
Revenue $ 32 million (5%) (5%)
EBIT $ 5 million 7%
Revenue declined versus the prior year primarily because of the decline in household moves. EBIT margin improved year-over-year due to ongoing productivity initiatives.

2010 Guidance

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 reaffirms its revenue, adjusted earnings per diluted share and free cash flow guidance for 2010. The company is updating its guidance for GAAP earnings per diluted share to reflect the non-cash tax charge resulting from recently enacted health care legislation. The company expects 2010 reported revenue to be in a range of flat to 3 percent growth. On a constant currency basis the company expects revenue in the range of a 2 percent decline to one percent growth. 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 expected non-cash tax charges of approximately $.07 cents per diluted share associated with out-of-the-money stock options that expire principally in the first and fourth quarters of 2010, and a non-cash tax charge of $.04 associated with recently enacted health care legislation. On a GAAP basis, the company expects 2010 earnings per diluted share from continuing operations in the range of $1.71 to $2.07. 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 increasing 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 Charges ($0.11)
GAAP EPS from Continuing Operations $1.71 to $2.07
Mr. Martin concluded, “We continue to realize the benefits of our ongoing actions to improve the infrastructure, productivity and profitability of the company. As the economy and business conditions improve, we believe we are poised to take advantage of the profitable growth opportunities that lay before us.”