STAMFORD, Conn., April 17 -- Pitney Bowes Inc. today announced revenue and earnings for the first quarter 2003 that were in line with previous guidance.
Commenting on the quarter, Chairman and CEO Michael J. Critelli stated, "Once again the strength of our business model gives us the resilience to meet expectations in a challenging economic environment. Even though the economy was as difficult as we had feared it might be, we were able to grow both revenue and operating profit in our core businesses and meet our revenue and earnings targets."
Revenue for the quarter grew four percent to $1.09 billion and net income was $113.9 million or $.48 per diluted share. In January this year the company announced that it would take actions to execute long-term growth strategies, and as a result, expected to record approximately $100 million of after-tax charges over the next two years. During the quarter, the company took several actions as part of this restructuring and recorded an after-tax charge of $14 million or $.06 per diluted share. Diluted earnings per share excluding this charge were $.54. First quarter 2003 earnings per share included $.04 per diluted share from non-core Capital Services operations compared to $.06 per diluted share in the first quarter of 2002.
The company also generated $217 million in cash from operations during the quarter. Subtracting $68 million in capital expenditures and excluding $13 million in payments associated with restructuring initiatives, free cash flow was $161 million. The company repurchased 1.6 million shares during the quarter at an average price of $31.84, leaving $250 million of authorization for share repurchases in 2003 and 2004.
In the first quarter, revenue increased five percent and operating profit increased nine percent in the Global Mailing Segment. Global Mailing continued to experience good customer demand for its revolutionary digital mailing systems and related value added services. It benefited from strong growth in its small business operations, although the economy caused some delayed decision-making for upgrades and new equipment purchases at the high end of the product line. Additionally, PSI Group, Inc. added operations and customers during the quarter as the company's pre-sort or work sharing service network continued to expand in terms of reach and revenue contribution.
Within the Global Mailing segment, non-U.S. revenue grew at a double-digit rate as a result of favorable foreign currency exchange rates. Canada and Australia had good revenue growth in local currency, helped by the introduction of new digital mailing systems. France also experienced good revenue growth on a local currency basis, helped by the success of the Secap organization. In many other European countries revenue declined on a local currency basis due to economic weakness and reduced demand after meter migration. Economic conditions also caused a revenue decline in Japan during the period.
The Enterprise Solutions Segment includes Pitney Bowes Management Services (PBMS) and Document Messaging Technologies (DMT). The segment reported four percent revenue growth and an operating profit decline of 35 percent for the quarter.
PBMS reported revenue growth of four percent to $244 million when compared to the prior year, while operating profit declined 37 percent. The lingering economic malaise continues to contract the telecommunications, financial services and transaction-based legal services industries, with a resultant adverse impact on PBMS revenue growth and margins. PBMS continued to add new customers and has retained all of its large customers. Yet margins were adversely impacted by the initial lower margins, higher start-up costs and delayed implementation associated with new accounts, and the loss of higher margin business with long-term customers as they continued to downsize. PBMS remains focused on diversifying its customer base and providing higher value services to its existing customers, while enacting cost reduction and containment measures to address these margin pressures.
DMT reported revenue of $59 million for the quarter, an increase of three percent versus the prior year. Operating profit also rose three percent during the quarter. DMT continued to be adversely impacted by reduced capital spending by businesses.
Total Messaging Solutions, the combined results of the Global Mailing and Enterprise Solutions segments, showed a five percent increase in revenue and a six percent increase in operating profit.
Revenue for the quarter declined 14 percent and operating profit decreased 13 percent in the Capital Services Segment which is consistent with the company's previously announced decision to cease originating large-ticket, structured, third party financing of non-core assets. During the quarter, the company liquidated approximately $80 million of non-core assets, including $29 million of its assets held for sale, and continued to pursue the sale of other non-core lease assets on an economically advantageous basis.
The company anticipates that, in aggregate, the global economy will remain weak for at least the near term. Given this assumption, the company expects year-over-year revenue growth for the second quarter and the full year 2003 to be in the range of two to four percent. As previously announced, over the course of the next two years the company expects to incur $100 million of after-tax restructuring charges, inclusive of the $14 million in restructuring charges recorded during this quarter. The company is still finalizing plans related to future restructuring actions, a portion of which will be recorded in the second quarter of 2003. Therefore, earnings guidance is provided excluding the impact of these future charges. Diluted earnings per share are expected to be in the range of $.58 to $.60 for the second quarter 2003 and the company is reaffirming previous full year guidance of $2.38 to $2.45 exclusive of restructuring charges.
In year-over-year comparisons, first quarter 2003 revenue included $290.9 million from sales of equipment and supplies, down five percent; $214.3 million from rentals, up five percent; $134.4 million from core financing, up three percent; $29.8 million from non-core financing down 17 percent; $272.6 million from business services, up 16 percent; and $148.9 million from support services, up eight percent. Net income for the period was $113.9 million, or $.48 per diluted share, down 12 percent compared to the first quarter of 2002. Excluding the after tax impact of the $21 million restructuring charge, net income was $127.5 million or $.54 per diluted share in the first quarter of 2003.
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