Pitney Bowes Announces Second Quarter 2016 Financial Results
Tuesday, August 02, 2016
Press release from the issuing company
STAMFORD, Conn. - Pitney Bowes Inc., a global technology company that provides products and solutions that power commerce, today reported financial results for the second quarter 2016.
Quarterly Financial Results:
"The second quarter was a critical period for Pitney Bowes, the progress of our strategic initiatives, and the long-term success of our Company," said Marc B. Lautenbach, President and CEO, Pitney Bowes. "During the quarter, we deployed our new enterprise business platform in the U.S., which is already delivering operational benefits across the Company; launched our Commerce Cloud, which unlocks new value for the small and medium business market and our clients; and signed agreements with several systems integrators to sell our software solutions and other products. Going forward, we remain optimistic about our ability to deliver sustained value for our shareholders, clients and employees in the second half and beyond.”
Second Quarter 2016 Results
Revenue totaled $836 million for the quarter, which was a decline of 5 percent. Revenue declined 4 percent versus the prior year when adjusted for both the impact of currency and the impact from the previously exited direct operations (market exits) in Mexico, South Africa and five markets in Asia. The revenue comparison to prior year was unfavorably impacted by an estimated $15 million to $20 million, or 2 percentage points, due to the temporary business impacts of the cutover to the new enterprise business platform in the U.S.
Digital Commerce Solutions revenue grew 11 percent on a reported basis and 12 percent on a constant currency basis. Revenue benefited from growth in Global Ecommerce, while revenue declined in Software Solutions.
Enterprise Business Solutions revenue was flat. Revenue grew 1 percent compared to the prior year when adjusted for the impacts of currency and market exits. Revenue benefited from continued growth in Presort Services.
Small and Medium Business (SMB) Solutions revenue declined 8 percent. Revenue declined 7 percent when adjusted for the impacts of currency and market exits. Within SMB, North America Mailing’s revenue comparison to prior year was unfavorably impacted by an estimated $15 million to $20 million, or 5 percentage points, due to the temporary business impacts of the cutover to the new enterprise business platform in the U.S. This impact resulted principally from lost daily sales activity and productivity during the cutover period.
Generally Accepted Accounting Principles earnings per diluted share (GAAP EPS) were $0.28, which included $0.09 per share for restructuring and asset impairment charges and $0.01 loss for discontinued operations.
Adjusted earnings per diluted share from continuing operations (Adjusted EPS) were $0.39. The Company uses Adjusted EPS to measure profitability and performance.
Earnings per share comparisons to prior year were unfavorably impacted by $0.02 per share for higher ERP related expenses; $0.02 per share for the absence of Imagitas earnings and an estimated $0.03 related to the new enterprise business platform cutover.
The Company’s earnings per share results for the quarter are summarized in the table below:
GAAP Cash from Operations and Free Cash Flow Results
GAAP cash from operations during the quarter was $95 million while free cash flow was $86 million. Free cash flow was slightly favorable to prior year as favorable working capital and lower capital expenditures were partly offset by lower net income.
During the quarter, the Company used cash for: $35 million in dividends to its common shareholders; $66 million for share repurchases and $12 million for restructuring payments. The Company also received $18 million of cash from investing activities related to the sale of a building in Troy, New York.
Business Segment Reporting
The Company’s business segment reporting reflects the clients served in each market and the way it manages these segments for growth and profitability. The primary reporting segment groups are the SMB Solutions group; the Enterprise Business Solutions group; and the Digital Commerce Solutions group.
The 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 includes the global Production Mail and Presort Services segments. Production Mail provides mailing and printing equipment and services for large enterprise clients to process mail. Presort Services provides sortation services to qualify large mail volumes for postal worksharing discounts.
The Digital Commerce Solutions group includes the Software Solutions and Global Ecommerce segments. Software Solutions provide customer engagement, customer information and location intelligence software. Global Ecommerce facilitates global cross-border ecommerce transactions and shipping solutions for businesses of all sizes.
The Other segment is comprised of the Imagitas marketing services business, which was sold on May 29, 2015.
North America Mailing
The business experienced temporary impacts from the enterprise business platform cutover in the U.S., and, as a result, the revenue rate of decline was greater than prior quarters. Equipment sales declined double digits and recurring revenue streams declined at a high single-digit rate. The equipment sales impact resulted principally from lost daily sales activity and productivity during the cutover period. The recurring revenue streams were impacted in part by financing fee waivers and lower supply purchases during this transition. The Company estimates that the North America Mailing segment revenue was unfavorably impacted by an estimated $15 million to $20 million, or 5 percentage points of growth, in the quarter due to this transition. Of this estimated amount, approximately two-thirds was attributed to equipment sales and one-third was attributed to the recurring revenue streams. EBIT margin was slightly lower than prior year due to the overall lower revenue.
Revenue trends compared to prior year continued to improve. Although reported revenue declined, when adjusted for both the impact of currency and market exits, revenue would have been flat to prior year. Equipment sales increased versus prior year most notably in France, Italy and Japan, in part due to improved sales productivity as disruption from go-to-market changes, especially in France, have subsided. The decline in recurring revenue streams was the lowest in seven quarters. EBIT margin declined versus the prior year primarily as a result of the mix of equipment sales.
Equipment sales grew due to higher sorter equipment installations during the quarter. Support services and supplies revenue declined, in part, as a result of some in-house mailers shifting their mail processing to third party outsourcers and the recent market exits. EBIT margin improved from prior year driven by service delivery cost management initiatives.
Revenue benefited from the higher volume of First Class mail processed as well as expansion into new markets. This was partially offset by a decline in Standard mail volumes processed. EBIT margin declined versus the prior year primarily due to the USPS rate change and increased mail processing costs related to higher labor costs.
Revenue declined due to lower licensing and data-related revenue versus the prior year. The Company has signed agreements with 2 global and 9 regional systems integrators as part of the continued focus on expanding the indirect channel. The Company continues to focus on improving sales efficiency to grow the pipeline of deals. EBIT margin declined as a result of the lower licensing revenue, which has a high margin.
Results included a full quarter of Borderfree revenue as compared to one month in the prior year. Revenue benefited from strong growth in the UK marketplace and the launch of new retail storefronts. Outbound U.S. marketplace package shipments grew in the quarter despite the stronger U.S. dollar versus prior year.
When adding pre-acquisition Borderfree revenue back to the prior year, for comparative purposes, organic growth in the Cross-Border Ecommerce business grew 11 percent in the quarter, which is an improvement from the first quarter performance.
EBIT margin declined slightly versus the prior year due to the amortization of acquisition-related intangible costs and investments for growth. The Company remains on-track to achieve its cross border synergy run-rate objective by the end of the year. In addition, the higher-margin domestic shipping business was temporarily impacted by the new enterprise business platform cutover in the U.S.
The Other segment is comprised of the Imagitas marketing services business, which was sold in May 2015.
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 2015 Form 10-K Annual Report and other reports filed with the Securities and Exchange Commission.
This guidance excludes any unusual items that may occur or additional portfolio or restructuring actions, not specifically identified, as the Company implements plans to further streamline its operations and reduce costs. Revenue guidance is provided on a constant currency basis because the Company cannot reasonably predict the impact future changes in currency exchange rates will have on revenue. Additionally, the Company cannot provide GAAP EPS and GAAP cash from operations guidance due to the uncertainty of future potential restructurings, goodwill and asset write-downs, unusual tax settlements or payments and contributions to its pension funds, acquisitions, divestitures and other potential adjustments, which could (individually or in the aggregate) have a material impact on the Company’s performance. The Company’s guidance is based on an assumption that the global economy and foreign exchange markets in 2016 will not change significantly.
The Company expects improving trends in the business in the second half of the year as a result of actions taken to achieve its long term strategic initiatives. Based on year-to-date results, particularly in Software, along with the second quarter temporary impact in North America Mailing as a result of the new enterprise business platform cutover, the Company is adjusting its annual guidance.
The Company now expects, for the full year 2016:
Therefore, for the second half of 2016 the Company expects:
To achieve improvement in the second half of the year as compared to the first half, the Company expects:
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