Pitney Bowes announces Q2 results; revenue declined
Wednesday, August 04, 2010
Press release from the issuing company
Stamford, Conn - Pitney Bowes Inc. today reported second quarter 2010 results.
Revenue for the quarter was $1.3 billion, a decline of 6 percent compared with the prior year. Adjusted earnings per diluted share from continuing operations for the second quarter was $0.48 compared with $0.55 for the prior year. Adjusted earnings per diluted share reflected the impact of lower revenue as a result of weaker than expected business conditions in the second half of the quarter and a one-time charge of $0.05 primarily to correct rates used to estimate unbilled International Mail Services revenue in prior periods. Earnings per diluted share for the quarter on a Generally Accepted Accounting Principles (GAAP) basis were $0.30 compared with $0.57 per diluted share for the prior year. GAAP earnings per diluted share for the quarter included a $0.15 charge for restructuring costs associated with the company's Strategic Transformation initiatives and asset impairments; a tax charge of $0.02 related to certain leveraged lease transactions outside the U.S.; a less than $0.01 tax charge primarily associated with out-of-the money stock options that expired during the quarter; and a $0.01 loss associated with discontinued operations.
Free cash flow for the quarter was $157 million, net of $70 million of tax payments. Free cash flow benefited from lower capital expenditures and lower finance receivables. On a GAAP basis, the company generated $118 million in cash from operations. During the quarter the company used $80 million of cash for dividends. Year-to-date, the company has generated $451 million in free cash flow and on a GAAP basis $424 million in cash from operations, which was used primarily to pay dividends and reduce debt.
Commenting on the quarter, Chairman, President and CEO Murray D. Martin said, "We continue to implement a broad range of actions to manage through a prolonged period of global economic weakness. After seeing some early signs of stabilization among our small to mid-sized customer base in the first quarter, we experienced a decline in activity levels in the latter part of the second quarter. Our actions are positioning the company to deliver long-term value to customers and shareholders, despite the near-term impact of weaker demand."
Martin added, "We continued to generate strong free cash flow in the quarter, and are raising our free cash flow guidance for the year. In addition, our Strategic Transformation program is already generating meaningful results and contributed more than $20 million in net benefits during the quarter. The program is on track to achieve its objectives of improving our processes and reducing our cost of business while allowing us to invest in attractive growth opportunities."
Business Segment Results
In mid-May, the company completed the U.S launch of its new, innovative Connect+ TM communications and mailing system. The global rollout will continue in phases going forward. Connect+ TM is being well received by customers as the industry's first mailing system with web and application based software architecture and instant online access to numerous mailing, printing and reporting applications.
Enterprise Business Solutions
Within the Enterprise Business Solutions Group:
Revenue declined slightly in the quarter versus the prior year due primarily to the continued transition to annuity-based pricing for some software solutions. Excluding the impacts of this transition, revenue growth would have been slightly positive versus the prior year. The company's actions to integrate its operations and focus its product offerings have resulted in continued year-over-year improvement in the Software segment EBIT margin. The company plans to continue expansion of its SaaS offerings and recurring revenue streams from term licenses. The company recently formed an alliance with salesforce.com, for example, to deliver software as a service solutions in the salesforce.com ecosystem that will help agents and insurance carriers increase profitability and strengthen customer relationships. During the quarter, the company announced its planned acquisition of Portrait Software plc and expects to complete the transaction in the third quarter. Portrait Software plc will further enhance the company's analytics and customer communications management capabilities.
As expected, revenue for the quarter declined as a result of account contractions and terminations in the U.S. last year. Revenue also reflected a customer decision, at end of contract, to close some outsourced postal-related facilities that Management Services had previously operated. Outside the U.S., where the company principally provides print and customer communication services to enterprise accounts in Europe, revenue declined on lower volumes. However, EBIT margins improved globally versus the prior year, led by continuing margin improvement in Europe and the U.S. resulting from the company's focus on more profitable contracts, ongoing productivity initiatives, and a continued transition to a more variable cost structure.
Mail Services continues to process increasing volumes of U.S. domestic presort mail and diversify its mix of mail as it grows Standard Class mail volumes. Overall volume of mail processed increased from both new and existing customers and was driven in part by the company's unique ability to help mailers benefit from the discounts available when properly utilizing the Intelligent Mail Barcode. Presort-related revenue for the quarter grew and the EBIT margin improved.
As noted earlier, revenue growth and margin were impacted by an adjustment made in the IMS portion of the business. During the quarter, the company made a one-time out of period adjustment primarily to correct the rates used previously to estimate earned but unbilled revenue for the periods 2007 through the first quarter 2010. The aggregate adjustment reduced second quarter revenue and EBIT, but the impact of this adjustment was not material on any individual quarter during these periods.
The company is modifying its revenue and earnings guidance as a result of the business trends during the second quarter; the economic and business outlook for the remainder of the year and the one-time adjustment in the second quarter. The global economy and business environment have not stabilized or improved as quickly as the company anticipated when it provided guidance earlier in the year. The company noted deterioration in conditions as the second quarter progressed, particularly among the customers in its SMB segment group. Based on the uncertainty surrounding the current economic outlook, the company now does not expect the business environment to improve as much as it had previously expected in the second half of the year.
Given the continued volatility and uncertainty concerning currency, the company will only provide revenue guidance on a constant currency basis. The company now expects revenue for the year on a constant currency basis in the range of flat to a three percent decline when compared with the prior year. Adjusted EPS from continuing operations for the year is expected to be in the range of $2.10 to $2.30 and GAAP EPS is expected to be in the range of $1.49 to $1.85. GAAP EPS includes tax charges of $.13 per diluted share related to out of the money stock options; certain capital lease transactions outside the U.S. and health care legislation enacted in the beginning of the year. GAAP EPS also includes expected restructuring and asset impairment charges in the range of $.32 to $.48 related to the company's previously announced Strategic Transformation program.
Based on the strong generation of free cash flow in the first half of the year and the outlook for the remainder of the year, the company is increasing its free cash flow guidance for the year by $50 million. The company now expects to generate free cash flow for 2010 in the range of $700 million to $800 million.
Mr. Martin concluded, "Given diminished economic growth expectations globally in the second half of the year, and a more cautious sentiment among our customers, we are reducing our full-year revenue and earnings guidance. However, we are also increasing our free cash flow guidance. We remain confident in and committed to our long-term growth strategies and Strategic Transformation program, and our strong free cash flow gives us significant financial and strategic flexibility."
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