Pitney Bowes Inc.  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.

Within the SMB Solutions Group:

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 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.

Within the Enterprise Business Solutions Group:

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.

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 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 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 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.