Pitney Bowes announces flat revenues in Q3
Wednesday, November 03, 2010
Press release from the issuing company
Stamford, Conn - Pitney Bowes Inc. today reported third quarter 2010 results.
Revenue for the quarter was $1.3 billion, which was flat to the prior year excluding the impact of foreign currency and declined one percent including the effects of currency. When compared to the third quarter of 2009, revenue benefited from 10 percent increases in both equipment sales and software revenue but was also affected by lower financing, rental and supplies revenue due to lower equipment sales in prior periods. Adjusted earnings per diluted share from continuing operations for the third quarter was $0.55 compared with $0.55 for the prior year. Earnings per diluted share for the quarter on a Generally Accepted Accounting Principles (GAAP) basis was $0.43 compared with $0.50 per diluted share for the prior year. GAAP earnings per diluted share for the quarter included a $0.10 charge for restructuring costs associated with the company's strategic transformation initiatives and a $0.01 loss associated with discontinued operations. Adjusted earnings per diluted share for the quarter included a three cent per share favorable adjustment related to a leveraged lease portfolio in Canada. This benefit helped offset higher international shipping costs in the mail services segment related to the company's expansion in the e-commerce parcel space.
Free cash flow for the quarter was $221 million, while on a GAAP basis, the company generated $243 million in cash from operations. Free cash flow benefited from $32 million of cash proceeds from the monetization of an interest rate swap position during the quarter and lower finance receivables. During the quarter, the company used $77 million of cash for dividends and $100 million of cash to buyback 4.7 million of its common shares. Year-to-date, the company has generated $673 million in free cash flow and on a GAAP basis $667 million in cash from operations, which was used primarily to pay dividends, buyback shares, make restructuring payments, and reduce debt.
Commenting on the quarter, Chairman, President and CEO Murray D. Martin said, "We are encouraged by the improvement we saw in equipment sales this quarter in our global Mailing and U.S. Production Mail businesses and by the growth in software revenue. Our new Connect+ web-based mailing system is being very well received by our customers and we expect it to be a key component in driving future mailing equipment sales. Positive equipment sales growth is an important early indicator of improvement in our businesses which serve the SMB market.
"While the economic recovery remains uncertain for some of our smaller customers, we are starting to see some signs of improved business confidence and spending in our customer base, especially among our larger enterprise customers in the U.S. This was evidenced by increased mail volumes processed by our Mail Services business and improved demand for our Software solutions and Production Mail equipment."
Business Segment Results
The company aggregates its business segments into 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 Enterprise Business Solutions group includes the company's global Production Mail, Software, Management Services, Mail Services and Marketing Services operations.
During the quarter, U.S. Mailing experienced improved sales among its mid-and larger-sized customers, although small business customers remained cautious about spending. Improving conditions among mid and larger-sized customers, plus the availability of the new Connect+ mailing system, resulted in a 5 percent year-over-year increase in equipment sales. This was the first increase in mailing equipment sales in seven quarters. The segment's overall revenue was affected, as expected, by lower rental and financing revenue as a result of lower sales in prior periods. EBIT margin improved by 50 basis points versus the prior year, benefiting from past and ongoing productivity improvements related to the company's strategic transformation program; lower credit losses; and recent lease extensions. Lease extensions are designed to enhance customer retention and result in improved profitability.
International Mailing revenue grew both on a reported basis and excluding the impact of foreign currency when compared with the prior year. The segment had double-digit growth for equipment sales during the quarter, driven by the sale of postal rate updates for scales in France. A similar postal rate update occurred in France in the first quarter of 2009. Excluding the impact of the rate change revenue, International Mailing still had high single-digit growth in equipment sales versus the prior year. As in the U.S., financing and rental revenue declined as a result of lower equipment sales in prior periods. EBIT improved versus the prior year in part due to past and ongoing productivity initiatives, as well as the favorable adjustment in a leveraged lease portfolio in Canada. These factors were offset in part by the negative margin impact from lower financing revenue.
During the quarter, increased demand for the company's high-speed, high integrity inserting systems, especially in the United States, helped drive revenue growth and a higher backlog of customer orders when compared with the prior year. Revenue also benefited from the installation of the first Intellijet color production printing system from the company's technology distribution partnership with HP. EBIT margin improved by 220 basis points propelled by current and ongoing productivity initiatives that increased margin leverage from revenue growth.
During the quarter, the Software business experienced increased demand for its software solutions, including data management, analytics and CRM. As a result, revenue increased versus the prior year as the company delivered more of these solutions to its customers. The company continued its transition to annuity-based pricing for selected software solutions and plans expansion of its SaaS offerings and recurring revenue streams from term licenses. The company also completed its planned acquisition of Portrait Software plc during the quarter, which will further enhance the company's analytics and customer communications management capabilities. Excluding related acquisition costs, Software EBIT grew at a double-digit rate and the margin would have improved versus the prior year.
As expected, revenue for the quarter declined as a result of account contractions and terminations in the U.S. over the last 12 months. The company has exited a number of postal facilities management contracts in the U.S. as the postal service realigned its delivery infrastructure. Outside the U.S., where the company principally provides print and customer communication services to enterprise accounts in Europe, revenue declined on lower volumes. Despite lower revenue, EBIT margins continued to improve versus the prior year, in both Europe and the U.S. The margin improvements resulted 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 its presence in 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 nationwide capability 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.
EBIT for the segment was impacted by increased costs associated with the International Mail Services (IMS) portion of the business. As the company ramps up its participation in the international e-commerce parcel market, higher shipping rates by some of the international carriers are affecting margins. The company is taking action to mitigate these cost increases to improve the margins of the business as volumes grow.
Revenue improved versus the prior year primarily because of increased vendor advertising for the Movers' Source kits, despite a decline in the number of household moves versus the prior year. EBIT margin improved year-over-year due to ongoing productivity initiatives.
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 narrowing its earnings guidance range to reflect the results for the first three quarters of the year and its outlook for the remainder of the year. The global economy and business environment appears to be stabilizing in some areas but still remains uncertain in other areas, such as small business.
The company continues to expect revenue for the year, excluding the impact of foreign currency, will be in the range of flat to a three percent decline when compared with the prior year. The company now expects adjusted EPS from continuing operations for the year to be in the range of $2.15 to $2.22 and GAAP EPS in the range of $1.54 to $1.69. 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 the impact of health care legislation enacted in the beginning of the year. GAAP EPS also includes expected restructuring and asset impairment charges in the range of $.40 to $.48 related to the company's previously announced strategic transformation program.
The company expects to generate free cash flow for 2010 at or above the high end of its stated range of $700 million to $800 million.
Mr. Martin concluded, "We are focused on implementing the actions that will help us navigate uncertain business and economic conditions in the near-term, while positioning us for long-term growth in the future. Our strategic transformation program is on track and providing the expected financial benefits as we saw this quarter when we had improving margins for four of our cost of revenue lines on our income statement and improving EBIT margins at five of our seven business segments. We remain focused on streamlining our business operations and creating more flexibility in our cost structure.
"Our investments for the future can be seen in actions during the quarter such as the continued phased launch of our innovative Connect+TM mailing system, and the completion of the acquisition of Portrait plc. We are committed to driving innovation and identifying more opportunities for growth in the future."
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 $5.6 billion global leader whose products, services and solutions deliver value within the mailstream and beyond.
To post a comment Log In or Become a Member, doing so is simple and free