STAMFORD, Conn., July 25 -- Pitney Bowes Inc. today reported second quarter performance that was driven by continued strong results in its core businesses. Revenue increased 13 percent to $1.36 billion. Net income for the quarter was $139 million or $.60 per diluted share versus $.58 per diluted share in the prior year. Excluding the impact of restructuring charges, the company's second quarter adjusted diluted earnings per share was $.67 versus $.62 in the prior year.
Commenting on the company's financial performance during the quarter, Chairman and CEO Michael J. Critelli noted, "This quarter we enjoyed continued success in executing our strategies for delivering sustainable value. We are particularly pleased with the positive momentum we are experiencing in our core businesses and our expectation for future growth through our strategic acquisitions.
"We are also pleased with the contributions from our strategic acquisitions as they are successfully integrated into our operations. We target acquisitions that allow us to expand in existing or adjacent growth markets that leverage our expertise, provide incremental near-term growth, and position us for stronger growth in the future. The recent acquisition of the marketing services company, Imagitas, Inc, is a good example. This transaction expands our presence in the growing marketing segment of the mailstream, provides immediate added value to our customers and shareholders, and strengthens our ability to provide longer-term value."
The results for the quarter were driven by ongoing strong worldwide demand for the company's mailing systems, mail services, and supplies for its broader base of digital products, as well as acquisitions completed within the prior twelve months.
Excluding the impact of restructuring charges, earnings before interest and taxes (EBIT) was $287 million and grew by 12 percent versus the second quarter of 2004. The growth in EBIT enabled the company to offset an increase in interest expense and a higher tax rate during the quarter compared with the prior year.
During the quarter, the company took several actions as part of its previously announced restructuring program and recorded after-tax charges of $17 million or $.07 per diluted share.
The company continues to pursue the spin-off of most of its Capital Services business, which contributed approximately $.04 per diluted share in the second quarter 2005, about equal to the contribution in the prior year.
The company generated $22 million in cash from operations during the quarter. Adjusted free cash flow was $167 million. Adjusted free cash flow reflects cash from operations after subtracting capital expenditures and excluding the effects from the company's restructuring program and a $200 million bond posted with the Internal Revenue Service (IRS). The company posted the bond in order to stop interest from accruing as we dispute potential tax liabilities.
The company purchased approximately two million of its common shares during the quarter for $85 million and has $51 million of remaining authorization for future share repurchases.
Effective as of the beginning of the year, the company revised its segments to reflect its product-based businesses separately from its service-based businesses. Global Mailstream Solutions includes worldwide revenue and related expenses from the sale, rental and financing of production mail and inserting equipment, mail finishing, mail creation and shipping equipment, related supplies and maintenance services, mailing and customer communication software and postal payment solutions.
During the quarter, Global Mailstream Solutions revenue increased 12 percent to $951 million and EBIT increased nine percent to $285 million, when compared with the prior year.
In the U.S., the quarter's revenue growth was favorably impacted by continued strong demand for networked digital mailing systems, especially for small and mid-sized systems, and for supplies for digital products. The quarter's results also included higher revenue from Document Messaging Technologies that was driven by the contribution of Group 1 Software, which was acquired in July 2004.
Outside of the U.S., revenue again grew at a double-digit rate. This reflected good revenue growth in virtually all of the company's markets, with the UK, Canada and Germany achieving significant revenue growth on a local currency basis. These results were based on strong demand for digital mailing systems, which are continuing to be introduced outside of the U.S., good growth in mailing equipment placements with small businesses, and increased supplies for digital products. In addition, revenue growth for the quarter benefited from the fourth-quarter 2004 acquisition of Groupe Mag and favorable foreign currency translation.
Global Business Services includes worldwide revenue and related expenses from facilities management contracts, reprographics, document management, and other value-added services to key vertical markets, and mail services operations, which include presort mail services, international outbound mail services and direct mail marketing services.
For the quarter, Global Business Services reported revenue growth of 20 percent to $369 million and EBIT growth of 46 percent to $23 million compared with the prior year.
The company's management services operation reported three percent revenue growth and double-digit EBIT growth for the quarter consistent with the ongoing focus on higher value service offerings and administrative cost reduction. The integration of Compulit, the litigation support business acquired last quarter to grow capabilities within the legal vertical market, continues to go well.
Mail services revenue more than doubled versus the prior year as a result of continued expansion into additional sites, growth in its customer base, and the acquisition of Imagitas during the quarter. EBIT margins improved versus the prior quarter and were comparable to the prior year as the company continued to invest in the expansion of its presort and international mail network and integrate recently acquired sites.
Capital Services revenue for the quarter declined 20 percent to $41 million and EBIT declined two percent to $26 million.
The quarter's EBIT was favorably impacted by the sale of assets in the portfolio. Earlier in the year, the company announced that it had entered into a definitive agreement with Cerberus Capital Management, L.P. for a sponsored spin-off of the Capital Services external leasing business. Subject to customary regulatory approvals, the new entity will be an independent, publicly traded company consisting of most of the assets in the Capital Services segment.
For the full year, the company expects to record net after-tax restructuring charges in the range of $13 million to $26 million, or $.06 to $.11 per diluted share, net of the after-tax gain on the sale of its Main Plant site, completed in the first quarter 2005. The restructuring charges relate to the continued realignment and streamlining of the company's worldwide infrastructure requirements. The timing of some of these restructuring activities is uncertain and not completely within the company's control.
For the full year, the company expects revenue growth in the range of nine to 11 percent and diluted earnings per share in the range of $2.52 to $2.64. Excluding the impact of net restructuring charges and a charitable contribution made in the first quarter, the company expects adjusted diluted earnings per share in the range of $2.66 to $2.72.
The company anticipates third quarter revenue growth in the range of 10 to 12 percent and diluted earnings per share in the range of $.57 to $.65. Excluding the impact of restructuring charges, the company expects adjusted diluted earnings per share in the range of $.65 to $.67.
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