PBI Pitney Bowes Inc

Pitney Bowes Inc. (NYSE:PBI) today reported second quarter 2009 financial results.

Revenue for the quarter was $1.38 billion compared with $1.59 billion in the prior year, a decline of 13 percent. A stronger dollar reduced revenue by 5 percent year-over-year. Adjusted earnings per diluted share from continuing operations was $0.55, compared with $0.69 in the prior year, which included $0.03 per diluted share from a 2008 legal settlement. Adjusted earnings per diluted share this quarter was equal to the first quarter of 2009.

Adjusted earnings per diluted share include the negative impacts of $0.04 per diluted share associated with currency and $0.01 per share from incremental pension costs when compared with the prior year. Earnings were further reduced by the impacts of lower revenue as a result of the weak global economic conditions.

On a Generally Accepted Accounting Principles (GAAP) basis, earnings per diluted share was $0.57 compared with $0.61 for the prior year. GAAP earnings per diluted share includes less than $0.01 in a non-cash tax charge associated with out-of-the money stock options that expired during the quarter and a $0.02 gain associated with discontinued operations.

Free cash flow was $204 million for the quarter while on a GAAP basis the company generated $207 million in cash from operations. Free cash flow benefited from strong accounts receivable management and lower levels of finance assets and capital investments. During the quarter the company paid $74 million of dividends. Year-to-date, the company has generated $444 million in free cash flow and on a GAAP basis $483 million in cash from operations, which was partially used to reduce debt by $179 million.

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

          Second Quarter* Adjusted EPS   $0.55 Tax Adjustments   ($0.00) GAAP EPS from Continuing Operations   $0.54 Discontinued Operations   $0.02 GAAP EPS   $0.57

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

“Despite a challenging economic environment, we remain a healthy and profitable company that continues to generate significant cash flow and continues to invest for the future,” noted Pitney Bowes Chairman, President and CEO Murray D. Martin, “Economic headwinds and unfavorable currency translation drove declines in revenue and EBIT year-over-year. However, as a result of significant cost containment measures, compared with the first quarter we improved EBIT margins in 6 of our 7 business reporting segments despite flat revenue. We have reduced costs across the entire business and have made a shift towards a more variable cost structure. We are committed to identifying and implementing meaningful structural and process improvements across the organization, that will reduce costs and enable continued investment to enhance customer and shareholder value.

“Looking ahead to the second half of 2009, we have seen a further slowing of business activity in key international markets, sales cycles for capital equipment purchases remain long, and we have not yet seen improvements in key mail-intensive industries like financial services. As a result, we are reducing our earnings outlook for the year. However, based on strong cash flow year-to-date, we are reaffirming our annual free cash flow guidance.”

Business Segment Results

To provide further insight on the trends of the business, the company is also furnishing revenue and EBIT results on a sequential basis, which is a comparison to first quarter results.

Mailstream Solutions revenue declined 10 percent on a constant currency basis to $936 million. On a reported basis, revenue declined 15 percent and earnings before interest and taxes (EBIT) declined 19 percent to $238 million when compared with the prior year. When compared with the first quarter 2009, reported revenue increased by one percent and EBIT increased by 3 percent.

Within Mailstream Solutions:

U.S. Mailing revenue declined 8 percent to $505 million and EBIT declined 12 percent to $195 million when compared with the prior year. Revenue declined by one percent and EBIT increased by one percent when compared with the first quarter.

Similar to the first quarter, the segment benefited from the anticipated higher number of customers with leases becoming available for renewal and upgrade. Although equipment sales declined 7 percent compared with the prior year, there was an improvement in equipment sales on a sequential basis. The company continued its focus on customer retention by providing customers with a variety of options to upgrade or retain their existing equipment. Many customers elected to extend the lease on their existing equipment. These transactions benefit future period’s profitability but have a less positive impact on revenue and profits during the quarter than lease upgrades for new equipment. The quarter’s revenue and EBIT reflect lower levels of business activity and the related lower financing revenue, meter rentals, and supplies sales versus the prior year.

International Mailing revenue declined 14 percent on a constant currency basis to $218 million. On a reported basis, revenue declined 28 percent with 14 points of decline due to an adverse currency impact when compared with the prior year. EBIT declined 47 percent to $27 million. Adjusting for the legal settlement received during the second quarter last year, EBIT would have declined 38 percent. Reported revenue declined by 8 percent and EBIT declined 13 percent when compared with the first quarter.

Economic conditions internationally appear to be lagging the U.S. This has resulted in ongoing deferred capital purchases for mailing equipment and delays by customers in adding new services. This was particularly noticeable in Canada, Asia and certain key markets in Europe. In addition to a lower level of revenue during the quarter, EBIT was adversely affected by changes in currency rates that increased some product costs.

Worldwide Production Mail revenue declined 7 percent on a constant currency basis to $130 million. On a reported basis, revenue declined 13 percent with 6 points of the decline due to an adverse currency impact compared with the prior year. EBIT declined 32 percent to $10 million. Reported revenue increased 19 percent and EBIT doubled when compared with the first quarter.

Customers worldwide continued to defer making large capital investments and as a result are keeping existing equipment longer than usual. This trend again resulted in increased service revenue. There was also sequential improvement in the placement of new high-speed inserting equipment.

Software revenue declined 12 percent on a constant currency basis to $83 million. On a reported basis, revenue declined 19 percent and EBIT declined 17 percent to $5 million, when compared with the prior year. Reported revenue increased 10 percent and EBIT doubled when compared with the first quarter.

Worldwide consolidation in the financial services industry and slowness in the retail sector continued to adversely impact the sales and renewal of software licenses. Uncertainty surrounding the economy has resulted in many large multi-national organizations changing their approval policies for capital expenditures, which has lengthened the sales cycle. Ongoing business integration drove EBIT margin improvements versus the prior year and prior quarter. This helped offset the pressure on margin due to lower revenue and a mix of lower margin software sales.

Mailstream Services revenue declined 6 percent on a constant currency basis to $442 million. On a reported basis, revenue declined 8 percent and EBIT increased 9 percent to $41 million when compared with the prior year. Reported revenue declined one percent while EBIT increased 20 percent when compared with the first quarter.

Within Mailstream Services:

Management Services revenue declined 8 percent on a constant currency basis to $264 million. On a reported basis, revenue declined 12 percent and EBIT declined 11 percent to $16 million, when compared with the prior year. Reported revenue declined by one percent and EBIT increased 18 percent when compared with the first quarter.

In the U.S., EBIT as a percentage of revenue remained at 10 percent, comparable to the prior quarter, despite lower business activity and a decline in transaction volumes. The company continues to flex its costs with changing customer demand by taking actions to reduce the fixed cost structure of the business. Outside the U.S., the company’s significant exposure to the weak financial services industry in the UK, and overall reduced print volumes throughout most of Europe, again pressured the segment’s EBIT as a percentage of revenue.

Mail Services revenue increased 4 percent on a constant currency basis to $139 million. On a reported basis, revenue increased 3 percent and EBIT increased 36 percent to $22 million, when compared with the prior year. Reported revenue declined 2 percent and EBIT increased 17 percent when compared with the first quarter.

Expansion of the customer base and continued growth in mail volume processed drove an increase in revenue for the quarter. The company is achieving improved EBIT margin contributions from the integration of mail services sites acquired last year and the ongoing productivity initiatives taken by the business.

Marketing Services revenue declined 17 percent to $40 million and EBIT declined 11 percent to $3 million, when compared with the prior year. Revenue declined 3 percent while EBIT increased 56 percent when compared with the first quarter.

Revenue was negatively affected by reduced business in the areas of marketing campaign management and loyalty programs. Ongoing cost reduction initiatives resulted in EBIT margin improvement.

Revised 2009 Guidance

The company is adjusting the guidance it provided on May 5, 2009. The company has not seen indications that economic and business conditions in mail-intensive industries will improve this year and has also seen further declines in some key geographies. Sales cycles for most capital purchase decisions by customers remain long. The changing guidance reflects these factors, including the impact of the sustained economic downturn on high-margin financing, rental, and supplies revenue streams. While the company has been successful in reducing its cost structure across its entire business and is shifting to a more variable cost structure, these actions have not been enough to offset the impact of lower revenue.

Given the persistent decline in business activity and the lack of tangible signs of sustained near-term improvement in the economy, the company now expects 2009 revenue to decline in the range of 4 percent to 7 percent on a constant currency basis. On a reported basis, the company expects revenue to decline in the range of 7 percent to 10 percent, which includes an estimated negative 3 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 $2.15 to $2.35. This range includes the expected negative impact of $0.23 to $0.28 per diluted share from currency and incremental pension expense. Adjusted earnings per diluted share from continuing operations excludes an annual estimated 6 cents per diluted share non-cash tax charge associated with out-of-the-money stock options that was recorded in the first half of 2009. On a GAAP basis, the company expects earnings per diluted share from continuing operations for the year will be in the range of $2.09 to $2.29.

The company is reaffirming its free cash flow guidance in the range of $700 million to $800 million for the year, based on its strong cash flow performance year-to-date.

The 2009 earnings guidance is summarized in the table below:

          Full Year 2009 Adjusted EPS   $2.15 to $2.35 Tax Adjustments   ($0.06) GAAP EPS from Continuing Operations   $2.09 to $2.29  

Mr. Martin concluded, “While the economic environment continues to be highly uncertain, we remain focused on the things that we can control. Let me reiterate our commitment to identify and implement structural and process improvements across the organization, as we remain focused on strengthening our long-term ability to generate value for customers and shareholders, while ensuring that the company is in the best possible position to capitalize on an eventual economic recovery.”

Management of Pitney Bowes will discuss the company’s results in a broadcast over the Internet today at 5:00 p.m. EST. 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 $6.3 billion global technology leader whose products, services and solutions deliver value within the mailstream and beyond. For more information about the company, its products, services and solutions, visit www.pitneybowes.com.

The company's financial results are reported in accordance with generally accepted accounting principles (GAAP). However, earnings per share, income from continuing operations, and free cash flow results are adjusted to exclude the impact of special items such as transformation initiatives, restructuring charges, tax adjustments, accounting adjustments and write downs of assets. Although these charges represent actual expenses to the company, these charges might mask the periodic income and financial and operating trends associated with our business. The use of free cash flow has limitations. GAAP cash flow has the advantage of including all cash available to the company after actual expenditures for all purposes. Free cash flow permits a shareholder insight into the amount of cash that management could have available for other discretionary uses. It adjusts for long-term commitments such as capital expenditures, as well as special items like cash used for restructuring charges, unusual tax payments and contributions to its pension funds. These items use cash that is not otherwise available to the company and are important expenditures. Management compensates for these limitations by using a combination of GAAP cash flow and free cash flow in doing its planning.

EBIT excludes interest payments and taxes, both cash expenses to the company, and as a result, has the effect of showing a greater amount of earnings than net income. The company uses EBIT for purposes of measuring the performance of its management team. The interest rates and tax rates applicable to the company generally are outside the control of management, and it can be useful to judge performance independent of those variables. Financial results on a constant currency basis exclude the impact of changes in foreign currency exchange rates since the prior period under comparison and are calculated using the average of the rates in effect during that period. 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 future business and financial performance. Pitney Bowes assumes no obligation to update any forward-looking statements contained in this document as a result of new information or future events or developments. For us forward-looking statements include, but are not limited to, statements about possible transformation initiatives; restructuring charges and our future revenue and earnings guidance. Forward-looking statements 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, including adverse impacts on customer demand; changes in foreign currency exchange rates; and changes in postal regulations, as more fully outlined in the company's 2008 Form 10-K Annual Report and other reports filed with the Securities and Exchange Commission.

Note: Consolidated statements of income; revenue and EBIT by business segment; and reconciliation of GAAP to non-GAAP measures for the three and six months ended June 30, 2009 and 2008, and consolidated balance sheets at June 30, 2009 and March 31, 2009 are attached.

       

Pitney Bowes Inc.

Consolidated Statements of Income

(Unaudited)

 

(Dollars in thousands, except per share data)

  Three Months Ended June 30, Six Months Ended June 30, 2009 2008 2009 2008

Revenue:

Equipment sales $ 257,196 $ 311,650 $ 489,021 $ 614,363 Supplies 81,973 101,286 170,002 208,886 Software 87,380 109,120 167,106 214,525 Rentals 156,151 185,855 324,281 370,808 Financing 174,508 197,263 357,306 396,202 Support services 179,246 194,955 353,593 386,480 Business services   442,008     487,957     896,737     970,779     Total revenue   1,378,462     1,588,086     2,758,046     3,162,043    

Costs and expenses:

Cost of equipment sales 139,770 166,282 262,855 327,395 Cost of supplies 21,369 26,419 44,710 54,291 Cost of software 21,570 26,453 41,067 54,190 Cost of rentals 38,013 39,671 73,864 77,975 Financing interest expense 25,438 27,552 49,890 57,928 Cost of support services 101,223 115,931 199,549 229,926 Cost of business services 352,306 383,009 712,213 762,300 Selling, general and administrative 424,265 497,689 867,793 994,184 Research and development 46,622 53,168 93,571 103,168 Restructuring charges and asset impairments - 18,815 - 35,908 Other interest expense 29,553 30,137 57,304 61,528 Interest income   (933 )   (3,562 )   (2,485 )   (6,552 )   Total costs and expenses   1,199,196     1,381,564     2,400,331     2,752,241    

Income from continuing operations before income taxes

179,266 206,522 357,715 409,802  

Provision for income taxes

  62,535     70,386     134,684     145,933    

Income from continuing operations

116,731 136,136 223,031 263,869  

Gain (loss) from discontinued operations, net of income tax

  5,102     (2,831 )   7,725     (6,663 )  

Net income before attribution of noncontrolling interests

121,833 133,305 230,756 257,206  

Less: Preferred stock dividends of subsidiaries

attributable to noncontrolling interests   4,571     4,796     9,092     9,594    

Pitney Bowes Inc. net income

$ 117,262   $ 128,509   $ 221,664   $ 247,612        

Amounts attributable to Pitney Bowes Inc. common

stockholders: Income from continuing operations $ 112,160 $ 131,340 $ 213,939 $ 254,275 Gain (loss) from discontinued operations   5,102     (2,831 )   7,725     (6,663 )   Pitney Bowes Inc. net income $ 117,262   $ 128,509   $ 221,664   $ 247,612    

Basic earnings per share of common stock attributable to

Pitney Bowes Inc. common stockholders (1): Continuing operations $ 0.54 $ 0.63 $ 1.04 $ 1.21 Discontinued operations   0.02     (0.01 )   0.04     (0.03 )   Net income $ 0.57   $ 0.62   $ 1.07   $ 1.18    

Diluted earnings per share of common stock attributable to

Pitney Bowes Inc. common stockholders (1): Continuing operations $ 0.54 $ 0.63 $ 1.03 $ 1.20 Discontinued operations   0.02     (0.01 )   0.04     (0.03 )   Net income $ 0.57   $ 0.61   $ 1.07   $ 1.17    

Average common and potential common

shares outstanding   207,138,489     209,543,013     207,001,754     211,481,391      

(1) The sum of the earnings per share amounts may not equal the totals above due to rounding.

          Pitney Bowes Inc. Consolidated Balance Sheets

(Unaudited)

  (Dollars in thousands, except per share data)  

Assets

06/30/09 03/31/09 Current assets: Cash and cash equivalents $ 445,262 $ 423,217 Short-term investments 23,399 19,717 Accounts receivable, less allowances:

06/09 $46,647

03/09 $42,336

 

 

796,119 795,272 Finance receivables, less allowances:

06/09 $42,814

03/09 $43,592

 

 

1,365,188 1,384,657 Inventories 171,267 170,228 Current income taxes 59,199 53,018 Other current assets and prepayments   102,911     79,458     Total current assets 2,963,345 2,925,567   Property, plant and equipment, net 546,805 555,963 Rental property and equipment, net 365,852 385,680 Long-term finance receivables, less allowances:

06/09 $25,091

03/09 $24,877

 

 

1,382,681 1,371,318 Investment in leveraged leases 212,235 195,340 Goodwill 2,276,151 2,209,599 Intangible assets, net 341,612 353,603 Non-current income taxes 58,044 62,283 Other assets   389,188     425,769     Total assets $ 8,535,913   $ 8,485,122    

Liabilities and stockholders' deficit

Current liabilities: Accounts payable and accrued liabilities $ 1,722,404 $ 1,684,080 Current income taxes 70,776 138,895 Notes payable and current portion of long-term obligations 292,869 384,382 Advance billings   491,073     482,215     Total current liabilities 2,577,122 2,689,572   Deferred taxes on income 320,842 270,630 FIN 48 uncertainties and other income tax liabilities 296,711 305,077 Long-term debt 4,209,129 4,227,697 Other non-current liabilities   788,244     820,310     Total liabilities   8,192,048     8,313,286     Noncontrolling interests (Preferred stockholders' equity in subsidiaries) 374,165 374,165   Stockholders' deficit: Cumulative preferred stock, $50 par value, 4% convertible 7 7 Cumulative preference stock, no par value, $2.12 convertible 969 972 Common stock, $1 par value 323,338 323,338 Additional paid-in capital 249,312 255,535 Retained earnings 4,351,845 4,308,909 Accumulated other comprehensive loss (533,571 ) (644,905 ) Treasury stock, at cost   (4,422,200 )   (4,446,185 )   Total Pitney Bowes Inc. stockholders' deficit   (30,300 )   (202,329 )   Total liabilities and stockholders' deficit $ 8,535,913   $ 8,485,122     Pitney Bowes Inc. Revenue and EBIT Business Segments June 30, 2009

(Unaudited)

        (Dollars in thousands) Three Months Ended June 30, % 2009 2008 Change

Revenue

  U.S. Mailing $ 505,159 $ 550,849 (8 %) International Mailing 217,900 302,085 (28 %) Production Mail 130,137 149,400 (13 %) Software   82,823     102,250   (19 %) Mailstream Solutions   936,019     1,104,584   (15 %)   Management Services 263,763 300,454 (12 %) Mail Services 138,598 134,764 3 % Marketing Services   40,082     48,284   (17 %) Mailstream Services   442,443     483,502   (8 %)   Total revenue $ 1,378,462   $ 1,588,086   (13 %)  

EBIT (1)

  U.S. Mailing $ 195,044 $ 220,526 (12 %) International Mailing 27,069 51,462 (47 %) Production Mail 10,413 15,350 (32 %) Software   5,219     6,317   (17 %) Mailstream Solutions   237,745     293,655   (19 %)   Management Services 16,140 18,230 (11 %) Mail Services 21,723 15,980 36 % Marketing Services   3,147     3,527   (11 %) Mailstream Services   41,010     37,737   9 %   Total EBIT $ 278,755 $ 331,392 (16 %)   Unallocated amounts: Interest, net (54,058 ) (54,127 ) Corporate expense (45,431 ) (51,928 ) Restructuring charges and asset impairments   -     (18,815 )   Income from continuing operations before income taxes $ 179,266   $ 206,522       (1) Earnings before interest and taxes (EBIT) excludes general corporate expenses and restructuring charges and asset impairments.   Pitney Bowes Inc. Revenue and EBIT Business Segments June 30, 2009

(Unaudited)

        (Dollars in thousands) Six Months Ended June 30, % 2009 2008 Change

Revenue

  U.S. Mailing $ 1,013,682 $ 1,103,434 (8 %) International Mailing 455,212 610,418 (25 %) Production Mail 239,566 284,804 (16 %) Software   158,198     201,913   (22 %) Mailstream Solutions   1,866,658     2,200,569   (15 %)   Management Services 530,265 603,089 (12 %) Mail Services 279,849 260,186 8 % Marketing Services   81,274     98,199   (17 %) Mailstream Services   891,388     961,474   (7 %)   Total revenue $ 2,758,046   $ 3,162,043   (13 %)  

EBIT (1)

  U.S. Mailing $ 387,878 $ 444,481 (13 %) International Mailing 58,008 101,397 (43 %) Production Mail 15,480 23,933 (35 %) Software   7,823     12,795   (39 %) Mailstream Solutions   469,189     582,606   (19 %)   Management Services 29,777 36,867 (19 %) Mail Services 40,298 34,369 17 % Marketing Services   5,163     5,279   (2 %) Mailstream Services   75,238     76,515   (2 %)   Total EBIT $ 544,427 $ 659,121 (17 %)   Unallocated amounts: Interest, net (104,709 ) (112,904 ) Corporate expense (82,003 ) (100,507 ) Restructuring charges and asset impairments   -     (35,908 )   Income from continuing operations before income taxes $ 357,715   $ 409,802       (1) Earnings before interest and taxes (EBIT) excludes general corporate expenses and restructuring charges and asset impairments.   Pitney Bowes Inc. Reconciliation of Reported Consolidated Results to Adjusted Results (Unaudited)         (Dollars in thousands, except per share data)   Three Months Ended June 30, Six Months Ended June 30, 2009 2008 2009 2008   GAAP income from continuing operations after income taxes, as reported $ 112,160 $ 131,340 $ 213,939 $ 254,275 Restructuring charges and asset impairments - 12,393 - 22,745 Tax adjustment 869 - 11,988 6,480 MapInfo purchase accounting   -     -     -     322   Income from continuing operations after income taxes, as adjusted $ 113,029   $ 143,733   $ 225,927   $ 283,822       GAAP diluted earnings per share from continuing operations, as reported $ 0.54 $ 0.63 $ 1.03 $ 1.20 Restructuring charges and asset impairments - 0.06 - 0.11 Tax adjustment 0.00 - 0.06 0.03 MapInfo purchase accounting   -     -     -     0.00   Diluted earnings per share from continuing operations, as adjusted $ 0.55   $ 0.69   $ 1.09   $ 1.34       GAAP net cash provided by operating activities, as reported $ 206,916 $ 217,314 $ 483,387 $ 470,449 Capital expenditures (42,414 ) (58,413 ) (90,190 ) (115,346 ) Restructuring payments and discontinued operations 16,409 24,816 49,110 37,509 Reserve account deposits   23,207     25,685     1,532     18,452     Free cash flow, as adjusted $ 204,118   $ 209,402   $ 443,839   $ 411,064         Note: The sum of the earnings per share amounts may not equal the totals above due to rounding.