Pitney Bowes profit drops 15 percent
Tuesday, August 05, 2008
Press release from the issuing companySTAMFORD, Conn. (August 04, 2008) Pitney Bowes Inc. today reported second quarter 2008 financial results.
Revenue increased 3 percent to $1.6 billion and adjusted income from continuing operations was $144 million. Adjusted income for the quarter excludes charges related to restructuring initiatives that the company announced on November 15, 2007 to reduce costs, accelerate operational improvements and transition its product line. On a Generally Accepted Accounting Principles (GAAP) basis, the company reported income from continuing operations of $131 million and net income of $128.5 million.
Adjusted earnings per diluted share from continuing operations for the second quarter was $0.69, which compares with $0.71 for the prior year, when the company benefited from sales of equipment that helped customers comply with the provisions of the U.S. Postal Service rate case, which requires that postage be based on shape as well as weight. On a GAAP basis, the company reported earnings per diluted share from continuing operations of $0.63 for the quarter, compared with $0.69 per diluted share for the prior year. Diluted earnings per share for the quarter was $0.61 including discontinued operations, compared with $0.68 in the prior year.
Free cash flow for the quarter was $205 million, while cash from operations was $213 million. Year-to-date, free cash flow was $401 million, while cash from operations was $461 million.
During the quarter, the company used $73 million of cash for dividends and $92 million to buy back 2.6 million of its shares. The remaining authorization for future share repurchases was $134 million at the end of the second quarter. Year-to-date, the company has returned $419 million to shareholders in the form of dividends and share repurchases.
Commenting on the company’s performance, President and CEO Murray D. Martin noted, “We are pleased that we remain on target to deliver full-year financial results consistent with our original guidance despite difficult comparisons for the first half of the year, and the challenging economic environment. We continue to experience strengthening demand in key markets outside of the U.S. for a wide range of our solutions and services that help businesses target, personalize, produce and distribute relevant communications to their customers. As we did in the first quarter, we are pleased to again increase our annual free cash flow guidance based on the year-to-date strong generation of cash, and our continued focus on working capital and expense management for the balance of the year.
“At the end of the quarter we concluded our strategic review of the U.S. Management Services operations and decided to retain and grow this business. During the review, we identified and began to execute actions to enhance Management Services’ profitability and long-term performance. We have already begun to see the benefits of these actions reflected in the operation’s improving margins.”
Business Segment Results
Mailstream Solutions includes worldwide revenue and related expenses from the sale, rental, and financing of mail finishing, mail creation, shipping, and production mail equipment; supplies; mailing and multi-vendor support services; payment solutions; and mailing, customer communication, and location intelligence software.
In the second quarter, Mailstream Solutions revenue declined 1 percent to $1.1 billion compared with the prior year, and earnings before interest and taxes (EBIT) declined 10 percent to $294 million.
Within Mailstream Solutions:
As anticipated, U.S. Mailing’s weaker revenue and unfavorable EBIT comparisons for the quarter reflected higher equipment sales in the prior year due to the 2007 postal rate case. This quarter’s results were also impacted by weak economic conditions and the slowing of the U.S. Postal Service’s mandated meter technology transition, which ends in December. The segment’s revenue declined 14 percent to $551 million due primarily to the decline in higher margin equipment sales related to shape-based pricing, resulting in a 16 percent EBIT decline to $221 million.
International Mailing’s revenue grew 20 percent to $302 million and EBIT increased 41 percent to $51 million. The segment’s revenue grew 6 percent, excluding the effects of currency and acquisitions. Revenue growth benefited by about 12 percent from favorable currency translation and by about 1 percent from acquisitions. Revenue growth also benefited from increased equipment sales in the UK and France, and continued good growth in supplies. EBIT margin comparisons with the prior year were favorably affected by an improving cost structure in Europe and a legal settlement during the quarter which increased margins by about 250 basis points.
Worldwide revenue for Production Mail grew 3 percent to $149 million while EBIT decreased 18 percent to $15 million. Favorable currency translation contributed about 5 percent to revenue growth. The revenue benefits from higher equipment placements in the UK and France were offset by lower equipment sales in the U.S. and parts of Europe. The EBIT margin declined primarily due to favorable net legal recoveries in Europe last year, which improved margins by about 200 basis points and a change in the geographic mix of business this year.
Software revenue increased 23 percent to $102 million, while EBIT decreased 27 percent to $6 million. Software sales grew at a double-digit pace outside of the U.S., but declined within the U.S. as a result of weak economic conditions, causing some large enterprise accounts to defer their purchase decisions. Revenue grew 3 percent, excluding the effects of currency and acquisitions. Acquisitions, including MapInfo, contributed 16 percent to revenue growth and favorable currency translation contributed about 4 percent. The decline in EBIT margin was due to the timing of the acquisition of MapInfo in mid-April 2007, product mix, and the planned global investment in sales, marketing and research and development.
Mailstream Services includes worldwide revenue and related expenses from facilities management contracts, reprographics, document management, and other value-added services for targeted customer markets; mail services operations, which include presort mail services and international mail services; and marketing services.
For the quarter, Mailstream Services reported revenue growth of 14 percent to $484 million, and an EBIT increase of 37 percent to $38 million versus the prior year.
Within Mailstream Services:
Management Services’ revenue increased 9 percent to $300 million for the quarter while EBIT increased 14 percent to $18 million. The segment’s revenue growth for the quarter benefited from last year’s acquisition of a French business services company, which added about 9 percent to revenue growth, and favorable currency translation, which added about 3 percent to revenue growth. The segment’s revenue was further affected by lower transaction volumes for some U.S. financial services customers. EBIT margin in the segment benefited from improvements in the U.S., where the company focused on reducing costs, particularly through several productivity initiatives. The margin benefits from the U.S. actions were partially offset by the costs associated with the acquisition in France.
During its recently concluded strategic review of the U.S. Management Services operations, the company identified several opportunities to drive future growth and enhance profitability by deploying new solutions, bringing greater technology to traditional mail and print management services, and driving further integration of end-to-end solutions that incorporate more of the full suite of Pitney Bowes capabilities.
Mail Services revenue grew 23 percent to $135 million and EBIT grew 46 percent to $16 million. Revenue growth was driven by both presort and international mail services. EBIT benefited from operating leverage from the increase in mail volume processed and increased operating efficiencies. Acquisitions added about 8 percent to revenue growth.
Marketing Services revenue increased 21 percent to $48 million. The segment’s results benefited from the continued expansion of marketing services programs, and acquisitions which added about 11 percent to revenue growth. The segment’s EBIT margin improved by approximately 4 percentage points versus the prior year as a result of the company’s phased exit from the motor vehicle registration services program.
Based upon the first half-year results and the outlook for the remainder of the year, the company increased full-year free cash flow guidance to a range of $675 to $750 million and reaffirmed 2008 expected revenue growth of 6 to 9 percent, and adjusted earnings per diluted share from continuing operations of $2.80 to $2.90.
Adjusted earnings per diluted share excludes charges related to the initiatives that the company announced on November 15, 2007 to reduce costs, accelerate improvements in operational efficiency, and transition its product line. Adjusted earnings per diluted share also excludes a first quarter tax adjustment associated with a UK leasing program that ended in 2002. The company anticipates that the restructuring and asset impairment charges in 2008 in connection with the transition initiatives will be in the range of $50 million to $100 million ($0.15 to $0.30 per diluted share).
On a GAAP basis, earnings per diluted share from continuing operations is expected to be in the range of $2.47 to $2.72.
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