Pitney Bowes Inc. (NYSE:PBI) today reported second quarter 2012
results.
Revenue for the quarter was $1.2 billion, a decline of 5 percent
when compared to the prior year. Excluding the impacts of currency,
revenue declined 3 percent and benefited from growth in the
International Mailing, Software and Mail Services segments. The
Small and Medium Business Solutions (SMB) segment’s revenue streams
continued to decline. Though the Production Mail and Management
Services segments also experienced revenue declines, both saw
improving revenue comparisons against the prior quarter on a
constant currency basis.
Earnings per diluted share for the quarter, on a Generally
Accepted Accounting Principles (GAAP) basis, were $0.50 versus
$0.49 per diluted share for the prior year. Earnings per diluted
share for the quarter includes a reduction of $0.03 per diluted
share for costs associated with debt management, including the
early redemption of $400 million of bonds originally scheduled to
mature later this year.
Free cash flow for the quarter was $301 million, while on a GAAP
basis, the company generated $274 million in cash from operations.
In comparison to prior year, free cash flow was favorably impacted
primarily by the timing of working capital payments. During the
quarter the company used $84 million of cash for dividends and
reduced debt by $578 million. 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, excluding the impact of changes
in currency, Software and Mail Services revenue grew. Additionally
within our SMB business, International Mailing revenue grew
year-over-year.
“There are drivers, particularly in the Enterprise group, that
we anticipate will moderate year-over-year revenue declines in the
second half of the year, as compared with the first half of the
year. These drivers include expansion of ecommerce and direct mail
opportunities in Mail Services, new print outsourcing services
provided by Management Services and increased backlog of equipment
orders for Production Mail. During the quarter, we signed a
strategic partnership with ORION Holdings to provide print
management services that create sustainable cost savings and
increased value for the global network of Interpublic Group’s
agencies and clients.
“We also continue to invest in our digital based communications
services and we have now signed more than 50 large third-party mail
service providers who will offer the Volly™ secure digital mail
service to more than 6,000 companies and consumer brands.
“During the quarter we continued to enhance our operational
efficiency and invest in growth opportunities. We also strengthened
our balance sheet through the early redemption of $400 million of
debt.”
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 operations.
SMB Solutions
2Q 2012 Y-O-Y Change
Change ex Currency Revenue $619 million
(8%) (5%)
EBIT $190 million (6%)
Within the SMB Solutions Group:
North America Mailing
2Q 2012 Y-O-Y Change
Change ex Currency Revenue $453 million (8%) (8%) EBIT
$168 million (5%)
During the quarter, the North America Mailing segment continued
to increase placements of the Connect+™ mailing system, as well as
improved retention rates among existing customers. Revenue was
adversely impacted by lower rentals and financing revenue as a
result of lower equipment sales in prior periods; however, rentals
revenue declined at a slower rate than it did the previous year.
Supplies revenue declined in part because of lower sales of
third-party supplies for copiers and printers. EBIT margin for the
segment improved by 140 basis points versus the prior year, which
was the eighth consecutive quarter of year-over-year improvement
due to ongoing productivity initiatives.
International Mailing
2Q 2012 Y-O-Y Change
Change ex Currency Revenue $165 million (6%) 1% EBIT
$22 million (19%)
International Mailing revenue increased one percent, which is
its third consecutive quarter of constant currency growth. Revenue
benefited from increased equipment sales and supplies revenue. The
company began selling its innovative Connect+ product line in
Germany during the quarter and Connect+ was approved for placement
in France beginning in the third quarter. Meter populations in
Europe were flat year-over-year and are growing in the emerging
markets. EBIT margin declined year-over-year due to impacts of
currency and the mix of business.
Enterprise Business Solutions
2Q 2012 Y-O-Y Change
Change ex Currency Revenue $627 million
(3%) (1%)
EBIT $61 million 11%
Within the Enterprise Business Solutions Group:
Worldwide Production Mail
2Q 2012 Y-O-Y Change
Change ex Currency Revenue $123 million (8%) (5%) EBIT
$6 million (39%)
Revenue during the quarter was adversely impacted by a low
backlog heading into the quarter and some large enterprise
customers continued to prolong their capital investment decisions.
However, the business experienced an increase in the backlog of
orders at the end of the quarter, which in part was a result of new
products and the quadrennial Drupa industry trade show held in May.
This is expected to improve performance in the second half of the
year as compared to the first half of the year.
EBIT margin this quarter declined year-over-year due to lower
revenue and increased investment in Volly. The company expects
continued investment in Volly in the second half of the year as
this solution approaches market launch in both Australia and the
U.S. Excluding the investment in Volly, EBIT margin would have been
approximately 460 basis points higher this quarter.
Software
2Q 2012 Y-O-Y Change
Change ex Currency Revenue $100 million 0% 3% EBIT $8
million (11%)
During the quarter, the Software segment continued to experience
good demand across its portfolio of software solutions, especially
in the Americas. However, the company experienced lower sales in
Europe, particularly in the public sector. Overall, the Software
EBIT margin declined versus the prior year because of product mix
and channel investments to expand its global solutions sales
capability.
Management Services
2Q 2012 Y-O-Y Change
Change ex Currency Revenue $228 million (5%) (3%) EBIT
$13 million (37%)
Management Services in North America experienced moderating
revenue declines and had significant year-over-year improvement in
net new written business for the second consecutive quarter. The
improvement in net new written business and new strategic
partnerships in print outsourcing are expected to drive revenue
growth going forward. However, revenue for the quarter declined
primarily due to account contractions and lower volumes in Europe
as a result of the weak economic environment there. EBIT margin
declined versus the prior year due to lower revenue and price
compression.
Mail Services
2Q 2012 Y-O-Y Change
Change ex Currency Revenue $141 million 5% 5% EBIT
$27 million 176%
Mail Services revenue grew versus the prior year as a result of
increased standard mail volumes and recovery from the impact that
the fire at the Dallas presort facility had on 2011 results.
Continued penetration in all of the workshare discount categories
also helped drive revenue growth for presort operations.
International Mail Services experienced lower revenue versus the
prior year due to fewer catalogue shipments. EBIT margin benefited
from ongoing productivity initiatives and streamlined operations in
the International Mail Services portion of the business. EBIT
margin also benefited from a final insurance reimbursement of $4
million that the company received related to the fire at its Dallas
presort facility last year.
Marketing Services
2Q 2012 Y-O-Y Change
Change ex Currency Revenue $36 million (1%) (1%) EBIT
$8 million 10%
Marketing Services EBIT benefited from reduced print production
costs and ongoing productivity initiatives.
2012 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 is updating its 2012 annual guidance to reflect
results year-to-date and weaker than originally anticipated
business conditions in the second half of the year due, in part, to
prolonged global economic uncertainty, especially in Europe. The
company’s original earnings per share guidance also did not
anticipate the significant changes in currencies that have occurred
this year.
Year-to-date the company’s revenue, excluding currency, declined
4 percent and adjusted earnings per diluted share were $1.02, which
excludes the $0.11 per share tax benefit in the first quarter.
Based on results to date and expectations for the second half of
the year, the company now anticipates 2012 revenue, excluding the
impacts of currency, to be in a range of flat to a decline of 4
percent when compared to 2011. This guidance assumes moderating
revenue declines for the second half of the year.
Additionally, the company expects adjusted earnings per diluted
share from continuing operations for 2012 to be in the range of
$1.95 to $2.15 and GAAP earnings per diluted share from continuing
operations to be in the range of $2.12 to $2.32. The updated
earnings per share guidance reflects an adverse impact of $0.04 to
$0.06 per share based on current foreign exchange rates. GAAP
earnings per diluted share include $0.11 per share of net tax
benefits and $0.06 per share from the sale of leveraged lease
assets in Canada, both of which occurred in the first quarter of
the year.
Based on its strong cash flow performance year to date, the
company is increasing its annual free cash flow range by $50
million and now expects it to be in the range of $750 million to
$850 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.
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 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: mail volumes; the uncertain
economic environment; timely development, market acceptance and
regulatory approvals, if needed, of new products; fluctuations in
customer demand; changes in postal regulations; interrupted use of
key information systems; management of outsourcing arrangements;
foreign currency exchange rates; changes in our credit ratings;
management of credit risk; changes in interest rates; 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 months and six months ended June 30, 2012 and 2011,
and consolidated balance sheets at June 30, 2012 and March 31, 2012
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, 2012
2011(2)
2012
2011(2)
Revenue: Equipment sales $ 224,235 $ 242,921 $ 444,414 $ 484,552
Supplies 70,522 78,587 146,887 161,457 Software 104,551 105,516
208,901 205,081 Rentals 145,497 156,162 285,886 312,854 Financing
122,948 136,369 249,696 276,958 Support services 171,254 176,807
344,772 355,421 Business services 406,811
418,112 820,918 841,220
Total revenue 1,245,818 1,314,474
2,501,474 2,637,543 Costs and
expenses: Cost of equipment sales 106,718 104,385 203,634 219,138
Cost of supplies 20,863 25,562 44,734 51,754 Cost of software
24,404 24,898 45,497 50,110 Cost of rentals 31,850 36,109 62,075
72,016 Financing interest expense 20,642 22,192 41,781 45,485 Cost
of support services 112,122 115,417 227,209 230,693 Cost of
business services 313,553 325,250 632,529 658,817 Selling, general
and administrative 391,606 432,715 802,791 859,326 Research and
development 33,776 37,441 67,849 72,199 Restructuring charges and
asset impairments 1,074 4,994 1,074 31,018 Other interest expense
30,353 28,550 59,720 57,074 Interest income (2,003 ) (2,215 )
(3,736 ) (3,437 ) Other income, net 4,372 -
1,138 - Total costs and
expenses 1,089,330 1,155,298
2,186,295 2,344,193 Income from
continuing operations before income taxes 156,488 159,176 315,179
293,350 Provision for income taxes 52,271
53,012 67,030 94,406
Income from continuing operations 104,217 106,164 248,149
198,944 (Loss) income from discontinued operations, net of
income tax - (635 ) 19,332
(2,517 ) Net income before attribution of
noncontrolling interests 104,217 105,529 267,481 196,427
Less: Preferred stock dividends of subsidiaries attributable to
noncontrolling interests 4,594 4,594
9,188 9,188 Net income - Pitney
Bowes Inc. $ 99,623 $ 100,935 $ 258,293 $
187,239 Amounts attributable to common
stockholders: Income from continuing operations $ 99,623 $ 101,570
$ 238,961 $ 189,756 Loss (income) from discontinued operations
- (635 ) 19,332 (2,517 )
Net income - Pitney Bowes Inc. $ 99,623 $ 100,935
$ 258,293 $ 187,239 Basic earnings per
share attributable to common stockholders (1): Continuing
operations 0.50 0.50 1.19 0.93 Discontinued operations -
(0.00 ) 0.10 (0.01 ) Net
income - Pitney Bowes Inc. $ 0.50 $ 0.50 $ 1.29
$ 0.92 Diluted earnings per share attributable
to common stockholders (1): Continuing operations 0.50 0.50 1.19
0.93 Discontinued operations - (0.00 )
0.10 (0.01 ) Net income - Pitney Bowes Inc. $
0.50 $ 0.49 $ 1.29 $ 0.92
(1)
The sum of the earnings per share amounts may not equal the
totals above due to rounding.
(2)
Certain prior year amounts have been reclassified to conform to the
current year presentation.
Pitney Bowes Inc.
Consolidated Balance Sheets
(Unaudited in
thousands, except per share data)
Assets
06/30/12 3/31/12 Current
assets: Cash and cash equivalents $ 499,772 $ 915,553 Short-term
investments 38,549 35,863 Accounts receivable, gross 691,332
725,446 Allowance for doubtful accounts receivable (30,233 )
(31,117 ) Accounts receivable, net 661,099 694,329
Finance receivables 1,221,086 1,263,826 Allowance for credit losses
(31,781 ) (39,124 ) Finance receivables, net
1,189,305 1,224,702 Inventories 187,562 179,321 Current
income taxes 20,107 116,247 Other current assets and prepayments
124,922 128,244 Total current assets
2,721,316 3,294,259 Property, plant and equipment, net
391,651 403,657 Rental property and equipment, net 251,495 261,388
Finance receivables 1,072,641 1,097,093 Allowance for credit
losses (19,960 ) (15,278 ) Finance receivables, net
1,052,681 1,081,815 Investment in leveraged leases 32,725
32,977 Goodwill 2,133,559 2,162,689 Intangible assets, net 188,657
201,891 Non-current income taxes 44,299 85,410 Other assets
528,614 538,172 Total assets $ 7,344,997
$ 8,062,258
Liabilities,
noncontrolling interests and stockholders' equity
Current liabilities: Accounts payable and accrued liabilities $
1,701,135 $ 1,675,152 Current income taxes 230,242 295,283 Notes
payable and current portion of long-term obligations 375,000
577,830 Advance billings 466,926 494,068
Total current liabilities 2,773,303 3,042,333
Deferred taxes on income 30,472 107,175 Tax uncertainties and other
income tax liabilities 223,603 198,853 Long-term debt 3,306,473
3,682,798 Other non-current liabilities 633,510
643,686 Total liabilities 6,967,361
7,674,845 Noncontrolling interests (Preferred
stockholders' equity in subsidiaries) 296,370 296,370
Stockholders' equity: Cumulative preferred stock, $50 par value, 4%
convertible 4 4 Cumulative preference stock, no par value, $2.12
convertible 653 653 Common stock, $1 par value 323,338 323,338
Additional paid-in-capital 227,136 225,869 Retained Earnings
4,708,485 4,683,949 Accumulated other comprehensive loss (657,658 )
(617,106 ) Treasury Stock, at cost (4,520,692 )
(4,525,664 ) Total Pitney Bowes Inc. stockholders' equity
81,266 91,043 Total liabilities,
noncontrolling interests and stockholders' equity $ 7,344,997
$ 8,062,258
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, 2012
2011 2012 2011 GAAP
income from continuing operations after income taxes, as reported $
99,623 $ 101,570 $ 238,961 $ 189,756 Restructuring charges and
asset impairments 462 3,563 462 20,869 Sale of leveraged lease
assets - - (12,886 ) - Tax adjustments - 334
- 2,513 Income from continuing
operations after income taxes, as adjusted $ 100,085 $
105,467 $ 226,537 $ 213,138 GAAP
diluted earnings per share from continuing operations, as reported
$ 0.50 $ 0.50 $ 1.19 $ 0.93 Restructuring charges and asset
impairments 0.00 0.02 0.00 0.10 Sale of leveraged lease - - (0.06 )
- Tax adjustments - 0.00 -
0.01 Diluted earnings per share from
continuing operations, as adjusted $ 0.50 $ 0.52 $
1.13 $ 1.04 GAAP net cash provided by
operating activities, as reported $ 274,172 $ 152,640 $ 370,167 $
449,401 Capital expenditures (38,722 ) (53,341 ) (88,751 ) (88,017
) Restructuring payments 21,630 22,223 47,875 51,968 Pension
contribution - 123,000 95,000 123,000 Tax payments on sale of
leveraged lease assets 15,671 - 84,904 - Reserve account deposits
28,008 24,083 2,334
18,088 Free cash flow, as adjusted $ 300,759
$ 268,605 $ 511,529 $ 554,440
Note: The sum of the earnings per share amounts may not equal the
totals above due to rounding.
Pitney Bowes
Inc. Revenue and EBIT Business Segments June
30, 2012
(Unaudited)
(Dollars in thousands)
Three
Months Ended June 30,
% 2012 2011 Change
Revenue
North America Mailing $ 453,484 493,653 (8 %) International
Mailing 165,480 176,158 (6 %) Small
& Medium Business Solutions 618,964
669,811 (8 %) Production Mail 123,067 133,769 (8 %)
Software 99,874 99,783 0 % Management Services 227,561 240,461 (5
%) Mail Services 140,507 134,273 5 % Marketing Services
35,845 36,377 (1 %) Enterprise Business
Solutions 626,854 644,663 (3 %)
Total revenue $ 1,245,818
1,314,474 (5 %)
EBIT
(1)
North America Mailing $ 167,870 $ 175,786 (5 %)
International Mailing 21,758 26,735 (19
%) Small & Medium Business Solutions 189,628
202,521 (6 %) Production Mail 5,594 9,223 (39
%) Software 8,487 9,542 (11 %) Management Services 12,606 19,979
(37 %) Mail Services 27,085 9,819 176 % Marketing Services
7,503 6,792 10 % Enterprise Business Solutions
61,275 55,355 11 %
Total EBIT
$ 250,903 $ 257,876 (3 %)
Unallocated amounts: Interest, net (2) (48,992 ) (48,527 )
Corporate and other expenses (44,349 ) (45,179 ) Restructuring and
asset impairments (1,074 ) (4,994 )
Income
from continuing operations before income taxes $
156,488 $ 159,176 (1)
Earnings before interest and taxes (EBIT) excludes general
corporate expenses and restructuring charges and asset impairments.
(2) Interest, net includes financing interest expense, other
interest expense and interest income.
Pitney Bowes
Inc. Revenue and EBIT Business Segments June
30, 2012
(Unaudited)
(Dollars in thousands)
Six
Months Ended June 30,
% 2012 2011 Change
Revenue
North America Mailing $ 914,789 1,002,692 (9 %)
International Mailing 333,494 346,691
(4 %) Small & Medium Business Solutions 1,248,283
1,349,383 (7 %) Production Mail 238,083
265,375 (10 %) Software 200,201 195,768 2 % Management Services
458,191 482,085 (5 %) Mail Services 290,663 278,556 4 % Marketing
Services 66,053 66,376 (0 %) Enterprise
Business Solutions 1,253,191 1,288,160
(3 %)
Total Revenue $ 2,501,474
2,637,543 (5 %)
EBIT
(1)
North America Mailing $ 346,041 $ 355,447 (3 %)
International Mailing 41,755 49,928 (16
%) Small & Medium Business Solutions 387,796
405,375 (4 %) Production Mail 8,373 16,397 (49
%) Software 19,179 15,054 27 % Management Services 25,921 41,008
(37 %) Mail Services 58,990 20,084 194 % Marketing Services
12,320 10,952 12 % Enterprise Business
Solutions 124,783 103,495 21 %
Total EBIT $ 512,579 $ 508,870
(1 %) Unallocated amounts: Interest, net
(97,765 ) (99,122 ) Corporate and other expenses (98,561 ) (85,380
) Restructuring and asset impairments (1,074 )
(31,018 )
Income from continuing operations before income
taxes $ 315,179 $ 293,350
(1) Earnings before interest and taxes (EBIT)
excludes general corporate expenses and restructuring charges and
asset impairments. (2) Interest, net includes financing interest
expense, other interest expense and interest income.
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