PBI Pitney Bowes Inc

Pitney Bowes Inc. (NYSE:PBI) today reported financial results for the second quarter 2014.

Highlights

• Revenue of $958 million, up 1 percent as reported and flat on a constant currency basis
• Adjusted EPS from continuing operations of $0.46
• GAAP EPS from continuing operations of $0.43; GAAP EPS of $0.46
• Free cash flow of $162 million; cash from operations of $175 million
• The Company increases 2014 guidance for revenue growth and adjusted EPS from continuing operations; narrows the range for GAAP EPS from continuing operations; and reaffirms free cash flow guidance for the year

“We are pleased with our second quarter financial results, which are consistent with our long-term strategic direction,” said Marc B. Lautenbach, President and CEO, Pitney Bowes. “Our Digital Commerce business performed very well, delivering 27 percent revenue growth, while profitability in our core mailing businesses continued to improve.

“Our performance through the first six months continues to substantiate the strategy we detailed 15 months ago, and further validates our long-term economic model. We remain ahead of schedule in our multi-year journey to transform Pitney Bowes and are confident in our ability to deliver against our objectives. As a result, we are increasing our 2014 guidance for both revenue and adjusted earnings per share.”

SECOND QUARTER 2014 RESULTS

Revenue in the second quarter totaled $958 million, which was growth of 1 percent on a reported basis and flat on a constant currency basis. On a reported basis, revenue for the quarter benefited from 27 percent growth in the Digital Commerce Solutions segment. Revenue in the Small and Medium Business (SMB) Solutions group declined 3 percent, primarily resulting from an acceleration in the implementation of the channel shift strategy. The Enterprise Business Solutions revenue declined 8 percent when compared to the prior year, which included revenue from large deals in the Production Mail segment.

Adjusted earnings per diluted share from continuing operations for the second quarter 2014 were $0.46 compared with $0.46 for the second quarter 2013, which included $0.05 per share of non-recurring tax benefits. Excluding the tax benefits in the prior year, adjusted earnings per share this year increased 11 percent versus the prior year.

Second quarter earnings per diluted share from continuing operations, on a Generally Accepted Accounting Principles (GAAP) basis were $0.43. GAAP earnings per diluted share from continuing operations included a restructuring charge of $0.03 per share associated with the previously announced cost reduction plans.

GAAP earnings per diluted share of $0.46 included income from discontinued operations of $0.03 per share.

          Earnings Per Share Reconciliation*   Q2 2014   Q2 2013 Adjusted EPS from continuing operations   $0.46     $0.46   Restructuring charges   ($0.03 )   ($0.06 ) GAAP EPS from continuing operations   $0.43     $0.39   Discontinued operations – income (loss)   $0.03     ($0.44 ) GAAP EPS   $0.46     ($0.05 ) * The sum of the earnings per share may not equal the totals above due to rounding.  

FREE CASH FLOW RESULTS

Free cash flow for the quarter was $162 million, while on a GAAP basis the Company generated $175 million in cash from operations. In comparison to the prior year, free cash flow benefited from the timing of tax payments and growth in bank reserve deposits. During the quarter, the Company used $47 million of cash for dividends and $15 million for restructuring payments.

BUSINESS SEGMENT REPORTING

The Company’s business segment reporting reflects the clients served in each market and the way it manages these segments. The reporting segment groups are: Small & Medium Business (SMB) Solutions group; Enterprise Business Solutions group; and the Digital Commerce Solutions segment.

The Small and Medium Business (SMB) Solutions group offers mailing equipment, financing, services and supplies for small and medium businesses to efficiently create mail and evidence postage. This group includes the North America Mailing and International Mailing segments. 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 provides mailing equipment and services for large enterprise clients to process mail, including sortation services to qualify large mail volumes for postal worksharing discounts. This group includes the global Production Mail and Presort Services segments.

The Digital Commerce Solutions segment leverages digital and mobile channels that make the Company’s clients’ customer-facing functions more effective. This segment includes software, marketing services, a digital document exchange, shipping and ecommerce solutions.

SMB Solutions Group

                2Q 2014   Y-O-Y Change   Change ex Currency Revenue $524 million (3 %) (4 %) EBIT   $183 million   3 %      

Within the SMB Solutions Group:

North America Mailing

  2Q 2014   Y-O-Y Change   Change ex Currency Revenue $371 million (5 %) (5 %) EBIT   $157 million   0 %      

The North America Mailing business accelerated the implementation of the SMB go-to-market strategy, resulting in lower equipment sales revenue in the first two months of the quarter. Results in the month of June, however, were back on trend. Recurring revenue streams declined at a lesser rate than prior year, supporting the Company’s long-term stabilization objective, and benefited from continued growth in supplies revenue.

As a result of the accelerated go-to-market implementation and lower marketing spend than the previous year, EBIT margin improved during the quarter.

International Mailing

 

2Q 2014

 

Y-O-Y Change

  Change ex Currency Revenue $153 million 2 % (2 %) EBIT   $ 26 million   32 %      

The modest revenue decline, on a constant currency basis, in International Mailing resulted from lower equipment sales in Europe. However, as a result of the stabilizing installed equipment base in prior periods, the segment continues to experience an improvement in year-over-year trend for recurring revenue streams. EBIT margin improved versus the prior year due to cost reduction initiatives, including the go-to-market implementation.

Enterprise Business Solutions Group

                2Q 2014   Y-O-Y Change   Change ex Currency Revenue $223 million (8 %) (8 %) EBIT   $ 33 million   (11 %)      

Within the Enterprise Business Solutions Group:

Worldwide Production Mail

  2Q 2014   Y-O-Y Change   Change ex Currency Revenue $112 million (17 %) (18 %) EBIT   $ 11 million   (33 %)      

The Production Mail revenue comparison this quarter reflected the impact of several large inserting and production print equipment installations in the second quarter of the prior year. However, recurring revenue continued to benefit from an increase in supplies revenue related to growth in the production printer installed base. EBIT margin was impacted by the lower revenue and the related margin contribution.

Presort Services

  2Q 2014   Y-O-Y Change   Change ex Currency Revenue $111 million 4 % 4 % EBIT   $ 22 million   5 %      

Presort Services revenue benefited from ongoing improved qualification of mail for presort discounts. EBIT margin improved versus the prior year due to lower facility costs and improved operational productivity.

Digital Commerce Solutions

                2Q 2014   Y-O-Y Change   Change ex Currency Revenue $211 million 27 % 26 % EBIT   $ 18 million   17 %      

Digital Commerce Solutions revenue benefited primarily from continued strong growth in the Company’s ecommerce solutions for cross-border package delivery. The Company also experienced improved revenue growth in the other major elements of the Digital Commerce Solutions segment, including software, shipping solutions and marketing services. Software revenue benefited from license sales in the business applications vertical market. EBIT and EBIT margin reflect the benefit of revenue growth, partially offset by continued investments in ecommerce technology and infrastructure. EBIT margin was also impacted by investment in software channel specialization and increased research and development spend.

2014 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 and as more fully outlined in the Company's 2013 Form 10-K Annual Report and other reports filed with the Securities and Exchange Commission.

Based on results year-to-date and the outlook for the remainder of the year, the Company is increasing annual guidance for revenue growth and adjusted earnings per share from continuing operations and narrowing the range for GAAP earnings per share from continuing operations. The Company is reaffirming annual guidance for free cash flow.

The Company now expects:

• Revenue to be in the range of one to three percent growth when compared to the prior year versus the one percent decline to two percent growth range previously expected. Guidance excludes the impacts of currency and reflects the expected ongoing stabilization of the mail-related businesses, as well as continued growth in Digital Commerce Solutions;
• Adjusted earnings per share from continuing operations to be in the range of $1.80 to $1.90 versus the range of $1.75 to $1.90 previously expected. Guidance reflects the operational performance year-to-date; the increased revenue outlook; and the timing of investment in solutions and infrastructure, such as ERP;
• GAAP earnings per share from continuing operations to be in the range of $1.55 to $1.65 versus the range of $1.53 to $1.68 previously expected. Guidance reflects the incremental $0.03 per share charge for restructuring costs this quarter, which now total $0.06 per share year-to date and $0.19 per share of debt extinguishment costs in the first quarter.

The Company still expects:

• Free cash flow to be in the range of $475 million to $575 million.

This guidance excludes any further actions that are under consideration by the Company to streamline its operations and further reduce its cost structure.

Conference Call and Webcast

Management of Pitney Bowes will discuss the Company’s results in a broadcast over the Internet today at 8:00 a.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.

About Pitney Bowes

Pitney Bowes provides technology solutions for small, mid-size and large firms that help them connect with customers to build loyalty and grow revenue. Many of the company’s solutions are delivered on open platforms to best organize, analyze and apply both public and proprietary data to two-way customer communications. Pitney Bowes includes direct mail, transactional mail and call center communications in its solution mix along with digital channel messaging for the Web, email and mobile applications.

Pitney Bowes: Every connection is a new opportunity™ www.pb.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 goodwill and asset write-downs, because, while these are actual Company expenses, they can mask underlying trends associated with its 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 settlements or 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 and goodwill and asset impairments, 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 its expected or potential future business and financial performance. For us forward-looking statements include, but are not limited to, statements about its 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; the implementation of a new enterprise resource planning system; changes in business portfolio; 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 its control as more fully outlined in the Company's 2013 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 and six months ended June 30, 2014 and 2013, and consolidated balance sheets at June 30, 2014 and December 31, 2013 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,   2014     2013     2014     2013   Revenue: Equipment sales $ 191,518 $ 225,224 $ 380,574 $ 421,991 Supplies 76,284 71,275 155,801 144,493 Software 109,065 100,482 200,620 187,494 Rentals 122,443 129,404 246,022 258,518 Financing 107,644 112,820 217,694 226,707 Support services 158,190 160,303 316,442 322,892 Business services   193,306     151,154     378,794     297,930     Total revenue   958,450     950,662     1,895,947     1,860,025     Costs and expenses: Cost of equipment sales 88,818 112,079 171,352 206,622 Cost of supplies 23,505 22,246 47,659 45,092 Cost of software 33,484 25,604 63,648 50,395 Cost of rentals 25,193 25,114 50,637 51,512 Financing interest expense 20,413 18,951 40,066 37,970 Cost of support services 96,722 99,337 195,703 201,866 Cost of business services 135,024 108,168 263,960 210,523 Selling, general and administrative 338,384 353,923 689,759 705,577 Research and development 28,649 27,331 54,841 56,582 Restructuring charges 8,299 19,031 18,140 19,031 Other interest expense 22,714 31,347 47,631 62,086 Interest income (1,232 ) (1,302 ) (2,085 ) (3,050 ) Other expense, net   -     -     61,657     25,121     Total costs and expenses   819,973     841,829     1,702,968     1,669,327     Income from continuing operations before income taxes 138,477 108,833 192,979 190,698   Provision for income taxes   46,335     24,218     54,371     42,013     Income from continuing operations 92,142 84,615 138,608 148,685   Income (loss) from discontinued operations, net of tax   6,717     (89,254 )   9,518     (81,224 )   Net income (loss) before attribution of noncontrolling interests 98,859 (4,639 ) 148,126 67,461   Less: Preferred stock dividends of subsidiaries attributable

to noncontrolling interests

  4,594     4,594     9,188     9,188     Net income (loss) - Pitney Bowes Inc. $ 94,265   $ (9,233 ) $ 138,938   $ 58,273       Amounts attributable to common stockholders: Income from continuing operations $ 87,548 $ 80,021 $ 129,420 $ 139,497 Income (loss) from discontinued operations   6,717     (89,254 )   9,518     (81,224 )   Net income (loss) - Pitney Bowes Inc. $ 94,265   $ (9,233 ) $ 138,938   $ 58,273     Basic earnings per share attributable to common stockholders (1): Continuing operations 0.43 0.40 0.64 0.69

Discontinued operations

  0.03     (0.44 )   0.05     (0.40 )   Net income (loss) - Pitney Bowes Inc. $ 0.47   $ (0.05 ) $ 0.69   $ 0.29     Diluted earnings per share attributable to common stockholders (1): Continuing operations 0.43 0.39 0.63 0.69 Discontinued operations   0.03     (0.44 )   0.05     (0.40 )   Net income (loss) - Pitney Bowes Inc. $ 0.46   $ (0.05 ) $ 0.68   $ 0.29     (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 in thousands, except per share data)

   

Assets

June 30,2014

December 31,2013 (1)

Current assets: Cash and cash equivalents $ 1,005,901 $ 907,806 Short-term investments 23,976 31,128   Accounts receivable, gross 423,103 482,949 Allowance for doubtful accounts receivable   (13,589 )   (13,149 ) Accounts receivable, net 409,514 469,800   Finance receivables 1,071,415 1,127,261 Allowance for credit losses   (22,852 )   (24,340 ) Finance receivables, net 1,048,563 1,102,921   Inventories 101,252 103,580 Current income taxes 31,580 28,934 Other current assets and prepayments 125,540 147,067 Assets held for sale   46,976     46,976     Total current assets 2,793,302 2,838,212   Property, plant and equipment, net 242,742 245,171 Rental property and equipment, net 215,793 226,146   Finance receivables 885,818 974,972 Allowance for credit losses   (10,819 )   (12,609 ) Finance receivables, net 874,999 962,363   Investment in leveraged leases 33,431 34,410 Goodwill 1,728,385 1,734,871 Intangible assets, net 102,760 120,387 Non-current income taxes 66,598 73,751 Other assets   538,073     537,397     Total assets $ 6,596,083   $ 6,772,708    

Liabilities, noncontrolling interests and stockholders' equity

Current liabilities: Accounts payable and accrued liabilities $ 1,504,887 $ 1,644,582 Current income taxes 191,687 157,340 Notes payable and current portion of long-term obligations 274,879 - Advance billings   439,038     425,833     Total current liabilities 2,410,491 2,227,755   Deferred taxes on income 39,509 39,701 Tax uncertainties and other income tax liabilities 166,920 190,645 Long-term debt 2,964,843 3,346,295 Other non-current liabilities   436,194     466,766     Total liabilities   6,017,957     6,271,162     Noncontrolling interests (Preferred stockholders' equity in subsidiaries) 296,370 296,370   Stockholders' equity: Cumulative preferred stock, $50 par value, 4% convertible 1 4 Cumulative preference stock, no par value, $2.12 convertible 563 591 Common stock, $1 par value 323,338 323,338 Additional paid-in-capital 172,565 196,977 Retained Earnings 4,778,506 4,715,564 Accumulated other comprehensive loss (559,351 ) (574,556 ) Treasury Stock, at cost   (4,433,866 )   (4,456,742 )   Total Pitney Bowes Inc. stockholders' equity   281,756     205,176     Total liabilities, noncontrolling interests and stockholders' equity $ 6,596,083   $ 6,772,708     (1)   Certain prior year amounts have been revised.     Pitney Bowes Inc. Revenue and EBIT Business Segments June 30, 2014

(Unaudited)

      (Dollars in thousands) Three Months Ended June 30, %   2014     2013  

 Change 

Revenue

  North America Mailing $ 371,194 392,197 (5 %) International Mailing   153,260     150,357   2 % Small & Medium Business Solutions   524,454     542,554   (3 %)   Production Mail 111,756 134,422 (17 %) Presort Services   111,281     106,961   4 % Enterprise Business Solutions   223,037     241,383   (8 %)   Digital Commerce Solutions   210,959     166,725   27 %   Total revenue $ 958,450   $ 950,662   1 %  

EBIT (1)

  North America Mailing $ 156,781 $ 157,518 - International Mailing   26,449     20,075   32 % Small & Medium Business Solutions   183,230     177,593   3 %   Production Mail 10,558 15,787 (33 %) Presort Services   22,412     21,246   5 % Enterprise Business Solutions   32,970     37,033   (11 %)   Digital Commerce Solutions   17,929     15,363   17 %   Total EBIT $ 234,129 $ 229,989 2 %   Unallocated amounts: Interest, net (2) (41,895 ) (48,996 ) Corporate and other expenses (45,458 ) (53,129 ) Restructuring charges   (8,299 )   (19,031 )   Income from continuing operations before income taxes $ 138,477   $ 108,833     (1)   Earnings before interest and taxes (EBIT) excludes general corporate expenses and restructuring charges. (2) Interest, net includes financing interest expense, other interest expense and interest income.     Pitney Bowes Inc. Revenue and EBIT Business Segments June 30, 2014

(Unaudited)

      (Dollars in thousands) Six Months Ended June 30, %   2014     2013  

 Change 

Revenue

  North America Mailing $ 752,221 781,033 (4 %) International Mailing   306,528     303,333   1 % Small & Medium Business Solutions   1,058,749     1,084,366   (2 %)   Production Mail 216,972 243,875 (11 %) Presort Services   227,772     217,861   5 % Enterprise Business Solutions   444,744     461,736   (4 %)   Digital Commerce Solutions   392,454     313,923   25 %   Total Revenue $ 1,895,947   $ 1,860,025   2 %  

EBIT (1)

  North America Mailing $ 317,119 $ 305,976 4 % International Mailing   51,268     37,465   37 % Small & Medium Business Solutions   368,387     343,441   7 %   Production Mail 18,295 23,619 (23 %) Presort Services   46,308     44,734   4 % Enterprise Business Solutions   64,603     68,353   (5 %)   Digital Commerce Solutions   27,460     15,084   82 %   Total EBIT $ 460,450 $ 426,878 8 %   Unallocated amounts: Interest, net (2) (85,612 ) (97,006 ) Corporate and other expenses (102,062 ) (95,022 ) Restructuring charges (18,140 ) (19,031 ) Other expense, net   (61,657 )   (25,121 )   Income from continuing operations before income taxes $ 192,979   $ 190,698   (1)   Earnings before interest and taxes (EBIT) excludes general corporate expenses and restructuring charges. (2) Interest, net includes financing interest expense, other interest expense and interest income.    

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,   2014     2013     2014     2013     GAAP income from continuing operations after income taxes, as reported $ 87,548 $ 80,021 $ 129,420 $ 139,497 Restructuring charges 5,577 13,126 12,258 13,126 Extinguishment of debt   -     -     37,833     15,325   Income from continuing operations after income taxes, as adjusted $ 93,125   $ 93,147   $ 179,511   $ 167,948       GAAP diluted earnings per share from continuing operations, as reported $ 0.43 $ 0.39 $ 0.63 $ 0.69 Restructuring charges 0.03 0.06 0.06 0.06 Extinguishment of debt   -     -     0.19     0.08   Diluted earnings per share from continuing operations, as adjusted $ 0.46   $ 0.46   $ 0.88   $ 0.83       GAAP net cash provided by operating activities, as reported $ 174,831 $ 146,875 $ 280,447 $ 279,035 Capital expenditures (42,207 ) (34,602 ) (72,350 ) (73,441 ) Restructuring payments 14,593 10,980 33,530 27,255 Reserve account deposits 11,803 1,138 (3,356 ) (26,189 ) Extinguishment of debt 3,300 - 61,657 25,121         Free cash flow, as adjusted $ 162,320   $ 124,391   $ 299,928   $ 231,781     Note: The sum of the earnings per share amounts may not equal the totals above due to rounding.     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, 2014 2013 2014 2013   GAAP income from continuing operations after income taxes, as reported $ 87,548 $ 80,021 $ 129,420 $ 139,497 Restructuring charges 5,577 13,126 12,258 13,126 Extinguishment of debt   -   -   37,833   15,325 Income from continuing operations after income taxes, as adjusted 93,125 93,147 179,511 167,948 Provision for income taxes, as adjusted 49,057 30,123 84,077 57,715 Preferred stock dividends of subsidiaries attributable to noncontrolling interests   4,594   4,594   9,188   9,188 Income from continuing operations before income taxes, as adjusted 146,776 127,864 272,776 234,851 Interest, net   41,895   48,996   85,612   97,006 Adjusted EBIT from continuing operations 188,671 176,860 358,388 331,857 Depreciation and amortization   49,122   52,667   92,863   103,199 Adjusted EBITDA from continuing operations $ 237,793 $ 229,527 $ 451,251 $ 435,056

Pitney Bowes Inc.Editorial:Bill Hughes, 203-351-6785Chief Communications OfficerorFinancial:Charles F. McBride, 203-351-6349VP, Investor RelationsorWebsite:www.pitneybowes.com