Pitney Bowes Meets Earnings Guidance for Second Quarter 2002
Press release from the issuing company
STAMFORD, Conn., -- On July 18, Pitney Bowes Inc. announced second quarter 2002 results that included diluted earnings per share of 59 cents, compared to 58 cents from continuing operations for the second quarter of 2001, excluding special items.
Revenue grew six percent to $1.08 billion and income from continuing operations for the quarter was $143.1 million. The income from continuing operations compares with $144.5 million in last year's second quarter excluding special items, and $187.9 million including special items.
During the quarter, the company repurchased 2.2 million of its shares outstanding, leaving $139 million of authorization for future share repurchases.
Free cash flow for the quarter was $80 million excluding payments related to special items, and $62 million including these payments. Free cash flow was affected by the timing of tax payments during the quarter as well as the build-up of receivables and inventory associated with the successful launch of new products and an increase in receivables related to the U.S. postal rate change. Year-to-date, free cash flow, excluding payments related to special items, was $269 million. Including payments for special items, free cash flow was $230 million.
As previously announced in June, the company signed a definitive agreement to acquire 100% of the stock of the PSI Group, Inc. (PSI), the nation's largest mail pre-sort company, for $130 million in cash. Subject to the completion of certain conditions, the company expects the transaction to close in the third quarter 2002.
Commenting on the quarter, Pitney Bowes Chairman and Chief Executive Officer Michael J. Critelli said, "This quarter was representative of our year thus far, where our underlying strength has enabled us to meet our earnings targets despite weakened economic conditions, while still taking actions to position us for continued, profitable growth into the future. Toward the end of the quarter, our sales force began selling the most comprehensive and technologically-advanced product line in Pitney Bowes' history. Currently launched in the U.S., the U.K. and Canada, our unique DM line of digital, networked mailing systems utilizes our patented Intellilink technology and provides our U.S. customers with convenient access to discounted special mailing services such as delivery confirmation and signature confirmation, among other benefits. These systems, based on a global architecture, will be available to the rest of the world shortly. We are very pleased with the reception they have already received from our customers in the brief time they have been available.
"The agreement to acquire PSI Group is part of our strategy to further expand our presence in the integrated mail and document management markets. The acquisition of this premier mail pre-sort business will allow us to offer new, value-added services to our customers and provide PSI customers access to the many Pitney Bowes products and services that can help them operate more cost- effectively.
"These actions, together with other pending initiatives, will further deliver shareholder and customer value as we strengthen our ability to provide leading-edge global, integrated mail and document management solutions to organizations of all sizes."
The Global Mailing Segment includes worldwide revenue and related expenses from the sale, rental and financing of mail finishing, mail creation and shipping equipment, related supplies and services, postal payment solutions, small business solutions and software. In the second quarter, Global Mailing revenue increased one percent while operating profit declined less than one percent. Excluding the revenue from the acquisition of Secap SA, Global Mailing revenue declined two percent for the quarter. Although results were impacted by a weak economy and a sales force that was in training to prepare for the launch of the new DM line late in the quarter, U.S. Global Mailing experienced strong demand for all of its products, including the new digital, networked mailing systems.
International Global Mailing experienced double-digit revenue growth, supported by acquisition revenue and improving business trends in the UK. Excluding the revenue from the acquisition of Secap SA, international Global Mailing revenue grew less than one percent despite the adverse impact of a weak global economy and a related continued slow-down in orders for mailing equipment in most of continental Europe. The Enterprise Solutions Segment includes Pitney Bowes Management Services (PBMS) and Document Messaging Technologies (DMT). Revenue from Management Services includes facilities management contracts for advanced mailing, reprographic, document management and other value-added services to large enterprises. Revenue from DMT includes sales, service and financing of high speed, software-enabled production mail systems, sorting equipment, incoming mail systems, electronic statement, billing and payment solutions, and mailing software in the U.S. The Enterprise Solutions segment reported revenue growth of 21 percent and operating profit growth of 15 percent.
PBMS reported revenue growth of 38 percent to $241 million when compared to the prior year, and operating profit growth of 48 percent. Excluding the revenue from the acquisition of Danka Services International (DSI), PBMS revenue increased two percent for the quarter. The weak economy continues to have an adverse impact on some of our largest customers, which in turn resulted in reduced revenue growth opportunities for PBMS.
DMT reported revenue of $58 million for the quarter, a decline of 20 percent from the prior year, with a greater decline in operating profit. Continued slow placements of high margin equipment, an increase in lower margin service revenue and investments in new product development contributed to the decline in operating profit during the quarter.
The company's integrated mail and document management services offered by its Enterprise Solutions organizations are especially valued by many large enterprises in today's economic environment as a way to increase the impact and reduce the costs of their integrated mail and document flow. The multi-year agreement signed during the quarter with Aetna is an example of a company which turned to Pitney Bowes to provide services and expertise that will contribute to reductions in Aetna's operating costs for their document production.
Total Messaging Solutions, the combined results of the Global Mailing and Enterprise Solutions segments, showed a six percent increase in revenue and a marginal increase in operating profit.
The Capital Services Segment includes primarily asset- and fee-based income generated by financing or arranging transactions for the acquisition of non-Pitney Bowes equipment. Revenue for the quarter declined four percent and operating profit increased 12 percent due to lower interest costs versus the prior year.
The company expects revenue growth for the third quarter to be in a range of five to seven percent and six to seven percent for the full year. Diluted earnings per share are expected to be in the range of 60 to 62 cents for the third quarter 2002 and $2.37 to $2.40 for the full year.
Second quarter 2002 revenue included $568.7 million from sales, up nine percent from $522.4 million in the second quarter of 2001; $369.5 million from rentals and financing, up one percent from $365.1 million; and $143.2 million from support services, up seven percent from $133.3 million. Net income for the period was $143.1 million, or 59 cents per diluted share. Income from continuing operations for the second quarter 2001 was $187.9 million or 76 cents per diluted share which included the following special gains and charges: a $362 million net pre-tax gain as a result of settling a lawsuit with Hewlett-Packard; a $248 million pre-tax charge associated with the company's transition to the next generation of networked technology; and a $29 million pre-tax charge related to initiatives associated with a restructuring plan. Excluding these special gains and charges, second quarter 2001 income from continuing operations was $144.5 million or 58 cents per diluted share and net income was $133.7 million or 54 cents per diluted share. Second quarter 2001 net income included a loss of $10.8 million from discontinued operations or approximately four cents per diluted share.
For the six-month period ended June 30, 2002, revenue was $2.131 billion, up seven percent from $1.987 billion in 2001. Net income for 2002 was $272.6 million or $1.12 per diluted share compared to income from continuing operations for 2001 which, excluding special gains and charges, was $276.1 million, or $1.11 per diluted share. Year-to-date pre-tax restructuring charges for 2001 totaled approximately $104 million, of which $71 million was related to continuing operations. Year-to-date net income for 2001, including special gains and charges, was $281.0 million or $1.13 per diluted share. The year-to-date net income for 2001 included a loss of $10.8 million from discontinued operations, or four cents per diluted share
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