Monday July 30 -- STAMFORD, Conn.-- Pitney Bowes Inc. today reported second quarter 2007 financial results.
Revenue increased 11 percent to $1.5 billion compared with the same period last year, reaching the high end of the revenue guidance range of 8 percent to 11 percent.
Income from continuing operations on a Generally Accepted Accounting Principles (GAAP) basis increased 27 percent, when compared to the prior year, to $154 million. As discussed last quarter, income from continuing operations reflects the alignment of MapInfo's accounting treatment for software revenue recognition with the company's policies. Excluding this accounting alignment, adjusted income from continuing operations was $159 million, which was a 10% increase from the prior year.
Earnings per share from continuing operations on a GAAP basis grew 28 percent to $.69 per diluted share from $.54 a year ago. Excluding the accounting alignment for MapInfo, adjusted earnings per share from continuing operations was $.71 per diluted share. This was an 11 percent increase as compared with the prior year's adjusted earnings per share and was at the high end of the company's guidance range of $.68 to $.72.
The company generated $187 million in cash from operations during the quarter. Free cash flow was $155 million. The company used $73 million for dividends and $85 million to repurchase 1.8 million of its shares during the quarter. The remaining authorization for future share repurchases is $266 million.
Commenting on the quarter, President and CEO Murray D. Martin noted, "We are pleased with our strong second quarter performance which underscores our ability to deliver value to shareholders and customers. This quarter's results were led by the U.S. Mailing, Software and Mail Services segments. The U.S. Mailing segment benefited from sales of equipment that help customers comply with the provisions of the recently-enacted U.S. postal rate case, which require that postage be based on shape as well as weight. Our expanding Software business and our Mail Services operations also had excellent results in the quarter. Lower equipment sales in Europe, as well as weak performance in the legal solutions portion of our Management Services segment, partially offset these positive results. We have put in place marketing programs in Europe that we believe will improve the performance for the remainder of the year. At Management Services we had excellent new written business and we are realigning our legal solutions management and operations, which we expect will improve revenue growth and EBIT margins for the remainder of the year."
Mr. Martin noted that other highlights for the quarter included the completion of the acquisition of MapInfo, a leading company in location intelligence solutions, and growth of the company's operations in the Asia-Pacific region.
Business Segment Results
Mailstream Solutions includes worldwide revenue and related expenses from the sale, rental, and financing of mail finishing, mail creation, shipping, and production mail equipment; supplies; mailing and multi-vendor support services; payment solutions; and mailing and customer communication software.
In the second quarter, Mailstream Solutions revenue increased 12 percent to $1.1 billion and earnings before interest and taxes (EBIT) increased 12 percent to $334 million, when compared with the prior year.
Within Mailstream Solutions:
U.S. Mailing operations revenue grew 12 percent to $633 million, and EBIT grew 12 percent to $262 million. The segment's results for the quarter were favorably impacted by growth in supplies and payment solutions as well as sales of equipment related to shape-based pricing. The company does not anticipate the benefits from shape-based pricing to continue for the remainder of the year. Therefore, the company expects full year revenue growth in U.S. Mailing within a normalized range.
International Mailing revenue grew 1 percent to $252 million while EBIT decreased 14 percent to $37 million. International Mailing revenue growth benefited by about 5 percent from favorable currency translation, but was adversely affected by lower equipment sales and rentals in Europe. The company's continued investments for growth in sales and marketing channels in Europe, as well as expenses related to the company's European back office operations, negatively impacted the segment's EBIT margin.
Worldwide revenue for Production Mail grew 5 percent to $140 million and EBIT increased 19 percent to $18 million. Revenue growth was driven by broad-based equipment placements in the U.S. and the Asia-Pacific region and favorable currency translation, which contributed about 2 percent to growth. However, lower equipment sales in Europe partially offset this growth. The segment's EBIT margin benefited from net legal recoveries in Europe amounting to approximately $3 million.
Software revenue increased 85 percent to $88 million and EBIT increased 226 percent to $17 million. Results for the quarter were driven by the acquisition of MapInfo, which increased revenue by about 57 percent, and strong worldwide demand for the company's software solutions that help customers develop, target, customize, address and print their critical customer communications.
Mailstream Services includes worldwide revenue and related expenses from facilities management contracts, reprographics, document management, and other value-added services for targeted customer markets; mail services operations, which include presort mail services and cross-border mail services; and marketing services.
For the quarter, Mailstream Services reported revenue growth of 10 percent to $430 million, while EBIT declined 15 percent to $29 million, versus the prior year.
Within Mailstream Services:
Management Services revenue increased 3 percent to $275 million for the quarter while EBIT declined 27 percent to $16 million. The segment's revenue growth for the quarter was helped by acquisitions and favorable currency translation, but adversely affected by non-recurring print contracts in the prior year. The decline in the segment's EBIT margin was due principally to continued investments for growth in sales and marketing channels, weakness in legal solutions, and the lower volume of offsite print contracts.
Mail Services revenue grew 26 percent to $114 million and EBIT grew 40 percent to $13 million. Revenue growth was driven by both presort and cross-border mail services, while EBIT benefited from the ongoing successful integration of new sites and increased operating efficiencies. Additionally, the segment was positively impacted by the recently enacted postal rate case, which increased the worksharing discounts available to large mailers.
Marketing Services revenue increased 22 percent to $40 million, while EBIT declined 83 percent to $1 million. Recent acquisitions and the continued expansion of marketing services programs supported the segment's results, but lower revenue in the company's motor vehicle registration services had an adverse effect on the segment's revenue and EBIT.
Outlook
The company anticipates third quarter revenue growth in the range of 8 percent to 11 percent and revenue growth in the range of 7 percent to 10 percent for the full year.
The company expects earnings per share from continuing operations on a GAAP basis in the range of $0.68 to $0.72 for the third quarter and $2.85 to $2.93 for the full year. Excluding the effect of the accounting alignment for MapInfo, the company expects adjusted earnings per share from continuing operations in the range of $0.70 to $0.74 for the third quarter and continues to expect $2.90 to $2.98 for the full year.