STAMFORD, Conn., July 21 -- Pitney Bowes Inc. today announced second quarter 2003 revenue and earnings performance in line with previous guidance. Commenting on the quarter, Chairman and CEO Michael J. Critelli said, "Our financial results met our expectations and were on target with previous guidance. During the quarter, we continued to make progress and are on track with our strategic imperatives to enhance our core businesses, streamline our infrastructure and execute our growth strategies."
Revenue for the quarter grew five percent to $1.13 billion and net income was $118.9 million or $.50 per diluted share. Excluding an after-tax charge of approximately $21 million, or $.09 per diluted share, as part of a previously announced restructuring program, second quarter diluted earnings per share were $.59. 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. Including this quarter's charge, the company has taken a total of approximately $34 million in after-tax charges for this program thus far in 2003. Consistent with its previously announced strategy to exit large-ticket, non-core financing activity, the company's second quarter 2003 earnings per share included $.04 per diluted share from non-core Capital Services operations compared to $.06 per diluted share in the second quarter of 2002.
The company also generated $209 million in cash from operations during the quarter. Subtracting $70 million in capital expenditures and excluding $11 million in payments associated with the restructuring program, free cash flow was $150 million during the quarter. The company repurchased 1.0 million of its shares during the quarter for $40 million, leaving $210 million of authorization for future share repurchases in 2003 and 2004.
In the Global Mailing Segment revenue increased seven percent and operating profit increased five percent. The company achieved these results while increasing research and development spending for the next generation of low-end digital meters, and incurring incremental costs to integrate new PSI Group processing sites. Customer acceptance of the new digital mailing systems and their unique value added services continued to be positive. However, business and economic uncertainty caused some delayed decision making among U.S. customers to consider equipment upgrades or the purchase of new high-end systems.
Non-U.S. revenue within the segment grew at a double-digit rate primarily as a result of favorable foreign currency exchange rates. On a local currency basis Canada again had good revenue and operating profit growth driven by placements of new digital meter systems and high-end production mail systems. France also experienced another quarter of strong revenue and operating profit growth on a local currency basis due to the integration and success of the Secap organization. Some of Europe experienced declining revenue in local currency due to weak economic conditions. Japan and Australia also experienced declining revenue due to economic conditions.
The Enterprise Solutions Segment includes Pitney Bowes Management Services (PBMS) and Document Messaging Technologies (DMT). The segment reported four percent revenue growth while operating profit declined 27 percent versus the prior year.
PBMS reported revenue growth of five percent to $252 million when compared to the prior year, while operating profit declined 26 percent. PBMS improved its operating profit margin from the previous quarter through general and administrative expense reductions and ongoing diversification into other market segments such as federal and state governments. For example, the contract that the company signed to provide mail and document management services to a division of the Department of Justice during the quarter demonstrates the strategic diversification of the management services customer base.
DMT reported revenue of $58 million for the quarter, an increase of one percent from the prior year, with a decline in operating profit. Continued slow placements of high margin equipment and an increase in lower margin service revenue contributed to the decline in operating profit during the quarter. However, compared to first quarter 2003, the operating profit margin improved and customer demand for DMT solutions appears to be increasing.
Total Messaging Solutions, the combined results of the Global Mailing and Enterprise Solutions segments, showed a six percent increase in revenue and a two percent increase in operating profit.
In the Capital Services Segment, revenue for the quarter declined 17 percent and operating profit decreased 11 percent. These results are consistent with the company's previously announced decision to cease the origination of large-ticket, structured, third party financing of non-core assets. Excluding the positive impact of lower interest expense, the earnings before interest and taxes (EBIT) declined by 18 percent compared to prior year. During the quarter, the company liquidated approximately $71 million of its assets held for sale, and continued to pursue the sale of other non-core lease assets on an economically advantageous basis, which resulted in the sale of an additional $52 million of assets from the portfolio during the quarter.
The company expects year-over-year revenue growth for the third quarter and the full year 2003 to be in the range of two to four percent. The company is still finalizing future plans related to previously announced restructuring initiatives, a portion of which will be recorded in the third quarter of 2003. Therefore, earnings guidance is provided excluding the impact of these charges and the impact of any new accounting standards. Diluted earnings per share are expected to be in the range of $.61 to $.63 for the third quarter 2003 and the company is reaffirming previous full year guidance.
In year-over-year comparisons, second quarter 2003 revenue included $327.8 million from sales of equipment and supplies, flat with the prior year; $211.4 million from rentals, up four percent; $135.9 million from core financing, up four percent; $26.6 million from non-core financing down 25 percent; $279.3 million from business services, up 16 percent; and $152.8 million from support services, up seven percent. Net income for the quarter was $118.9 million, or $.50 per diluted share, down 17 percent compared to the second quarter of 2002. Included in net income for the period was a $32 million pre-tax restructuring charge. Excluding the after tax impact of this charge, net income was $139.4 million and diluted earnings per share were $.59 in the second quarter of 2003, equal to the prior year.
For the six-month period ended June 30, 2003, total revenue was $2.22 billion, up four percent compared to 2002. Included in total revenue was $618.7 million from sales of equipment and supplies, down two percent; $425.7 million from rentals, up four percent; $270.3 million from core financing, up four percent; $56.4 million from non-core financing down 21 percent; $551.9 million from business services, up 16 percent; and $301.7 million from support services, up seven percent. Net income for the period was $232.8 million or $0.98 per diluted share down 15 percent compared to 2002. Included in net income for the period was $53 million in pre-tax restructuring charges. Excluding the after tax impact of these charges, net income was $266.9 million and diluted earnings per share were $1.13, an increase of one percent versus the prior year.
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