Pitney Bowes Results on Target for Q2: Revenues Grow 6%, Earnings 5%
Press release from the issuing company
STAMFORD, Conn., July 26 -- Pitney Bowes Inc. today announced second quarter 2004 revenue and earnings performance in line with previous guidance. Commenting on the quarter, Chairman and CEO Michael J. Critelli said, "We are pleased that our financial performance was on target during the quarter. The quarter's results included good market acceptance of new products by small and mid-size, international, and document messaging technologies customers and ongoing integration of acquisitions such as DDD Company and International Mail Express. This is consistent with our plan to grow by enhancing the core businesses and expanding our market presence through strategic acquisitions. The acquisition of Group 1 Software, which was completed last week, is the latest example of our strategy to grow our share of the $250 billion global mail and document management markets. This acquisition will help us expand our global reach; grow our mailstream participation; and lay the foundation for profitable expansion into the customer communication market."
Revenue for the quarter grew six percent to $1.21 billion and net income was $134.7 million or $.58 per diluted share, representing a 14 percent increase compared to the previous year. Diluted earnings per share, excluding a charge for the company's restructuring program, were $.62. During the quarter, the company took several actions as part of its previously announced restructuring program and recorded an after-tax charge of $10 million or $.04 per diluted share. Excluding this charge, net income was $145.1 million. Consistent with the company's strategy to transition out of external financing activity, non-core Capital Services contributed $.03 per diluted share this quarter compared to $.04 per diluted share in the second quarter of 2003.
The company generated $239 million in cash from operations during the quarter. Subtracting $72 million in capital expenditures and excluding $14 million in payments associated with restructuring initiatives, free cash flow was $180 million. In addition, the company generated approximately $31 million in cash from the sale of non-core Capital Services assets. During the quarter the company repurchased approximately 892,000 of its shares for $39 million, leaving $265 million of authorization for future share repurchases.
In the Global Mailstream Solutions Segment revenue increased five percent and earnings before interest and taxes (EBIT) increased four percent during the quarter. Revenue was characterized by continued strong growth in small business solutions and double-digit growth in supplies and presort mail services. The company has recently introduced a program to offer presort services to a broader range of its customers. The quarter's revenue trends also reflect the ongoing changing mix of the product line, where a greater percentage of the revenue is coming from more fully featured smaller systems, supplies, payment solutions, software and services and less from larger systems sales.
Non-U.S. operations again experienced good organic revenue growth and also benefited from favorable foreign currency exchange rates, although to a lesser extent than in the first quarter of the year. Overall, the introduction of new digital mailing systems continues to be well received by customers worldwide. All of the major markets in Asia and Europe had positive revenue growth in the quarter, including Germany, which has experienced improving business trends.
In the Global Enterprise Solutions Segment revenue grew seven percent and EBIT increased 15 percent during the quarter.
Pitney Bowes Management Services (PBMS) reported revenue of $264 million, a five- percent increase compared to the prior year, with improved margins on a sequential basis. PBMS continued its process of identifying and delivering focused document management solutions to customers on a cost-effective basis. There appeared to be improving demand during the quarter for document management services in several key vertical markets, including the government, legal and financial markets.
Document Messaging Technologies (DMT) reported revenue growth of 15 percent to $70 million for the quarter, with improved margins over the prior year. DMT benefited from the large backlog of orders generated in previous quarters, in addition to the ongoing customer demand for the company's industry leading inserting systems, such as APS(TM) and Flowmaster(TM) inserters. There was also strong growth during the quarter in software solutions offerings.
In the Capital Services Segment, revenue increased 35 percent and EBIT increased one percent. Revenue and EBIT for the quarter were favorably affected by the sale of non-core assets. Excluding these asset sales, Capital Services revenue would have declined six percent and EBIT would have declined eight percent compared to prior year.
Including the recently completed acquisition of Group 1, the company expects year-over-year revenue growth for the third quarter 2004 to be in the range of seven to nine percent and for the full year 2004 to be in the range of six to seven percent. As previously announced, over the remainder of this year the company expects to incur additional restructuring charges. The company is still finalizing plans related to future restructuring actions, a portion of which will be recorded in the third and fourth quarters. Therefore, earnings guidance is provided excluding the impact of these future charges, which have not yet been determined. The company expects diluted earnings per share to be in the range of $.62 to $.64 for the third quarter 2004 and reaffirms its full-year diluted earnings per share range of $2.44 to $2.51.
In year-over-year comparisons, second quarter 2004 revenue included $338.4 million from sales of equipment and supplies, up three percent versus the prior year; $200.6 million from rentals, up four percent; $158.6 million from core financing, up four percent; $40.7 million from non-core financing, up 48 percent; $307.6 million from business services, up ten percent; and $159.9 million from support services, up five percent.
For the six-month period ended June 30, 2004, revenue was $2.38 billion, up seven percent compared to 2003. Included in revenue was $669.8 million from sales of equipment and supplies, up eight percent; $402.1 million from rentals, up three percent; $317.0 million from core financing, up four percent; $60.2 million from non-core financing, up four percent; $608.3 million from business services, up ten percent; and $320.4 million from support services, up six percent. Net income for the period was $261.3 million or $1.11 per diluted share up 13 percent compared to 2003. Included in net income for the period was $31.3 million in pre-tax restructuring charges. Excluding the after tax impact of these charges, net income was $281.3 million and diluted earnings per share were $1.20, an increase of six percent versus the prior year.
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