Pitney Bowes Announces 12% Drop in Revenue
Press release from the issuing company
STAMFORD, Conn -- Pitney Bowes Inc. today reported first quarter 2009 financial results.
Revenue for the quarter was $1.38 billion compared with $1.57 billion in the prior year. Revenue declined 12 percent including a 6 percent negative currency impact. Adjusted earnings per diluted share from continuing operations was $0.55 which compares with $0.66 for the prior year.
On a Generally Accepted Accounting Principles (GAAP) basis, earnings per diluted share was $0.50 compared with $0.56 for the prior year. GAAP earnings per diluted share includes a $0.05 non-cash tax charge associated with out-of-the money stock options that expired during the quarter and a $0.01 gain from discontinued operations.
Free cash flow for the quarter increased 19 percent versus the first quarter 2008 to $240 million while on a GAAP basis the company generated $276 million in cash from operations. During the quarter the company used $74 million of cash for dividends to stockholders and reduced debt outstanding by about $95 million.
"I am encouraged by our results which reflect the profit inherent in our underlying revenue streams and the achievement of our cost management objectives, even while operating in one of the toughest economic environments in recent history," noted Pitney Bowes Chairman, President and CEO Murray D. Martin. "Excluding the negative currency impacts of $0.07 per share and $0.02 per share from increased pension costs, our adjusted earnings per diluted share declined only 3 percent despite a 6 percent decline in revenue on a constant currency basis.
"During the quarter, we continued our focus on customer retention, expense management, and cash flow generation to mitigate these economic headwinds. Existing customer relationships play an important role in future growth, which is why we are pleased with our success in customer retention.
"We are realizing the benefits of the actions we have taken to streamline our costs and expenses. Our selling, general and administrative expenses declined by $53 million on a reported basis, and we reduced our expenses by nearly $25 million on a constant currency basis when compared with the prior year, excluding incremental pension expenses. We also improved gross margins related to both our software and support services revenues. At the same time, we continued to invest in the long-term growth of the business, including maintaining consistent year-over-year investment in research and development. We continued to have robust free cash flow as a result of our ongoing focus on the balance sheet and capital expenditures."
Business Segment Results
Mailstream Solutions revenue declined 8 percent on a constant currency basis. On a reported basis, revenue declined 15 percent to $931 million and earnings before interest and taxes (EBIT) declined 20 percent to $231 million when compared with the prior year.
Within Mailstream Solutions:
U.S. Mailing revenue declined 8 percent to $509 million and EBIT declined 14 percent to $193 million. The segment continued to benefit from the anticipated higher number of customers with leases becoming available for renewal and upgrade. U.S. Mailing had a 9 percent increase in the number of mail metering equipment sales transactions, versus the prior year. In this challenging economic environment, the company focused on customer retention by providing customers with more options to extend their lease and keep their existing equipment. As a result, the company experienced a three-fold increase in the number of lease extensions of existing equipment. These transactions benefit future periods' profitability but have a less positive impact on revenue during the quarter than new equipment placements. As in recent quarters, our business was impacted as customers also continued to defer capital investments in high-value table-top inserters and address printers. In addition, revenue growth and EBIT were adversely affected by lower financing revenue, meter rentals, and supplies sales because of lower business activity levels.
International Mailing revenue declined only 5 percent on a constant currency basis. On a reported basis, revenue was $237 million, a decline of 23 percent, which includes an adverse currency impact of 18 percentage points. Norway and Latin America experienced positive revenue growth on a constant currency basis, while there was weaker revenue performance in France, Canada and Asia Pacific. EBIT declined 38 percent to $31 million. Changes in currency rates increased product costs which unfavorably impacted EBIT for the quarter. On a constant currency basis, EBIT margins improved in Europe, despite lower revenue, driven by the company's actions to reduce service and administrative costs.
Worldwide Production Mail revenue declined 12 percent on a constant currency basis. On a reported basis revenue declined 19 percent to $109 million and EBIT declined 41 percent to $5 million. As anticipated, customers in many regions continued to defer making large capital investments and are keeping existing equipment longer than usual. This resulted in increased service revenue on a constant currency basis, which partially mitigated lower equipment sales revenue. Service margins improved because of greater resource efficiency and higher revenue on longer-service equipment. The company continued to see solid demand in Canada and Latin America for its high-speed, intelligent inserting systems. However, in the U.S., Europe and Asia credit constraints and prolonged economic challenges in key vertical markets resulted in lower equipment sales.
Software revenue declined 13 percent on a constant currency basis. On a reported basis revenue declined 24 percent to $75 million and EBIT declined 60 percent to $3 million. Consistent with other large-ticket business segments and the trends from last quarter, there were fewer enterprise-level software licensing deals than the prior year as customers continued to defer capital investments. The company continued investments in new product development and integration of its global software engineering organization.
Mailstream Services revenue declined 3 percent on a constant currency basis, as Mail Services continued growth was offset by reduced activity in outsourced services in Management Services. On a reported basis, revenue declined 6 percent to $449 million and EBIT declined 12 percent to $34 million when compared with the prior year.
Within Mailstream Services:
Management Services revenue declined 7 percent on a constant currency basis. On a reported basis revenue declined by 12 percent to $267 million and EBIT declined 27 percent to $14 million. In the U.S., despite declining transaction volumes, the company improved EBIT as a percentage of revenue by about 80 basis points to 10 percent when compared with the prior year. This result reflects the ongoing actions to reduce the fixed cost structure of the business, while allowing the company to flex its costs with changing customer demand. For Management Services businesses outside the U.S., the company experienced lower print and transaction volumes, especially in Europe, which resulted in an overall decline in the segment's EBIT.
Mail Services revenue increased 14 percent on a constant currency basis. With the recent expansion into the UK, currency now has an impact on revenue and reduced growth during the quarter by about one percentage point. On a reported basis, revenue increased 13 percent to $141 million and EBIT increased one percent to $19 million. Solid growth in the volume of mail processed contributed to underlying revenue growth. While the benefits from operating leverage have been temporarily offset by the integration costs associated with acquisitions made in the U.S. and UK in 2008, the quarter's results reflect improvement in EBIT margin from these sites.
Marketing Services revenue declined 17 percent to $41 million while EBIT increased 15 percent to $2 million. Revenue benefited from the strong performance of the postal change of address marketing program, but was negatively affected by the loss of revenue from the planned exit of the company's motor vehicle registration services program. Cost reduction initiatives and the exit from the motor vehicle registration services program resulted in EBIT margin improvement.
2009 Guidance
The company is adjusting the guidance it provided on February 5, 2009. The severity of the current economic environment has changed some customer behavior and has caused greater deferral of office technology capital investments. However, the company maintains a high percentage of contractual business, which provides recurring revenue, earnings and cash flow. In addition, the company's recent restructuring initiatives have reduced its fixed cost base and the company continues to take actions to further reduce its operating costs.
On a constant currency basis, the company expects 2009 revenue to decline in the range of 1 percent to 4 percent. On a reported basis, the company expects revenue to decline in the range of 6 percent to 9 percent, which includes an estimated negative 5 percent impact from currency when compared with 2008. The company expects adjusted earnings per diluted share from continuing operations for the year will be in the range of $2.40 to $2.60. This range includes the expected negative impact of $0.30 to $0.35 per diluted share from currency and incremental pension expense. Adjusted earnings per diluted share from continuing operations excludes an annual estimated 6 cents per share non-cash tax charge associated with out-of-the-money stock options that expire principally in the first quarter of 2009. On a GAAP basis, the company expects earnings per diluted share from continuing operations for the year will be in the range of $2.34 to $2.54.
The company is reaffirming its free cash flow guidance in the range of $700 million to $800 million for the year, based on its strong cash flow performance in the first quarter.
In closing Mr. Martin noted, "We remain committed to enhancing our operational efficiency and reinvesting a portion of the savings from our cost reduction initiatives in future growth and enhanced customer value. We also have great confidence in our ability to deliver excellent cash flow. That is why we have maintained a high level of investment even as we have further reduced our operating costs across our businesses. We are focused on strengthening our position for long-term value creation and believe we are poised to generate strong, profitable growth when the economy begins to improve."
Management of Pitney Bowes will discuss the company's results in a broadcast over the Internet today at 5:00 p.m. EDT. Instructions for listening to the earnings results via the Web are available on the Investor Relations page of the company's web site at www.pb.com/investorrelations.
Pitney Bowes is a $6.3 billion global technology leader whose products, services and solutions deliver value within the mailstream and beyond. For more information about the company, its products, services and solutions, visit www.pitneybowes.com.
Revenue for the quarter was $1.38 billion compared with $1.57 billion in the prior year. Revenue declined 12 percent including a 6 percent negative currency impact. Adjusted earnings per diluted share from continuing operations was $0.55 which compares with $0.66 for the prior year.
On a Generally Accepted Accounting Principles (GAAP) basis, earnings per diluted share was $0.50 compared with $0.56 for the prior year. GAAP earnings per diluted share includes a $0.05 non-cash tax charge associated with out-of-the money stock options that expired during the quarter and a $0.01 gain from discontinued operations.
Free cash flow for the quarter increased 19 percent versus the first quarter 2008 to $240 million while on a GAAP basis the company generated $276 million in cash from operations. During the quarter the company used $74 million of cash for dividends to stockholders and reduced debt outstanding by about $95 million.
"I am encouraged by our results which reflect the profit inherent in our underlying revenue streams and the achievement of our cost management objectives, even while operating in one of the toughest economic environments in recent history," noted Pitney Bowes Chairman, President and CEO Murray D. Martin. "Excluding the negative currency impacts of $0.07 per share and $0.02 per share from increased pension costs, our adjusted earnings per diluted share declined only 3 percent despite a 6 percent decline in revenue on a constant currency basis.
"During the quarter, we continued our focus on customer retention, expense management, and cash flow generation to mitigate these economic headwinds. Existing customer relationships play an important role in future growth, which is why we are pleased with our success in customer retention.
"We are realizing the benefits of the actions we have taken to streamline our costs and expenses. Our selling, general and administrative expenses declined by $53 million on a reported basis, and we reduced our expenses by nearly $25 million on a constant currency basis when compared with the prior year, excluding incremental pension expenses. We also improved gross margins related to both our software and support services revenues. At the same time, we continued to invest in the long-term growth of the business, including maintaining consistent year-over-year investment in research and development. We continued to have robust free cash flow as a result of our ongoing focus on the balance sheet and capital expenditures."
Business Segment Results
Mailstream Solutions revenue declined 8 percent on a constant currency basis. On a reported basis, revenue declined 15 percent to $931 million and earnings before interest and taxes (EBIT) declined 20 percent to $231 million when compared with the prior year.
Within Mailstream Solutions:
U.S. Mailing revenue declined 8 percent to $509 million and EBIT declined 14 percent to $193 million. The segment continued to benefit from the anticipated higher number of customers with leases becoming available for renewal and upgrade. U.S. Mailing had a 9 percent increase in the number of mail metering equipment sales transactions, versus the prior year. In this challenging economic environment, the company focused on customer retention by providing customers with more options to extend their lease and keep their existing equipment. As a result, the company experienced a three-fold increase in the number of lease extensions of existing equipment. These transactions benefit future periods' profitability but have a less positive impact on revenue during the quarter than new equipment placements. As in recent quarters, our business was impacted as customers also continued to defer capital investments in high-value table-top inserters and address printers. In addition, revenue growth and EBIT were adversely affected by lower financing revenue, meter rentals, and supplies sales because of lower business activity levels.
International Mailing revenue declined only 5 percent on a constant currency basis. On a reported basis, revenue was $237 million, a decline of 23 percent, which includes an adverse currency impact of 18 percentage points. Norway and Latin America experienced positive revenue growth on a constant currency basis, while there was weaker revenue performance in France, Canada and Asia Pacific. EBIT declined 38 percent to $31 million. Changes in currency rates increased product costs which unfavorably impacted EBIT for the quarter. On a constant currency basis, EBIT margins improved in Europe, despite lower revenue, driven by the company's actions to reduce service and administrative costs.
Worldwide Production Mail revenue declined 12 percent on a constant currency basis. On a reported basis revenue declined 19 percent to $109 million and EBIT declined 41 percent to $5 million. As anticipated, customers in many regions continued to defer making large capital investments and are keeping existing equipment longer than usual. This resulted in increased service revenue on a constant currency basis, which partially mitigated lower equipment sales revenue. Service margins improved because of greater resource efficiency and higher revenue on longer-service equipment. The company continued to see solid demand in Canada and Latin America for its high-speed, intelligent inserting systems. However, in the U.S., Europe and Asia credit constraints and prolonged economic challenges in key vertical markets resulted in lower equipment sales.
Software revenue declined 13 percent on a constant currency basis. On a reported basis revenue declined 24 percent to $75 million and EBIT declined 60 percent to $3 million. Consistent with other large-ticket business segments and the trends from last quarter, there were fewer enterprise-level software licensing deals than the prior year as customers continued to defer capital investments. The company continued investments in new product development and integration of its global software engineering organization.
Mailstream Services revenue declined 3 percent on a constant currency basis, as Mail Services continued growth was offset by reduced activity in outsourced services in Management Services. On a reported basis, revenue declined 6 percent to $449 million and EBIT declined 12 percent to $34 million when compared with the prior year.
Within Mailstream Services:
Management Services revenue declined 7 percent on a constant currency basis. On a reported basis revenue declined by 12 percent to $267 million and EBIT declined 27 percent to $14 million. In the U.S., despite declining transaction volumes, the company improved EBIT as a percentage of revenue by about 80 basis points to 10 percent when compared with the prior year. This result reflects the ongoing actions to reduce the fixed cost structure of the business, while allowing the company to flex its costs with changing customer demand. For Management Services businesses outside the U.S., the company experienced lower print and transaction volumes, especially in Europe, which resulted in an overall decline in the segment's EBIT.
Mail Services revenue increased 14 percent on a constant currency basis. With the recent expansion into the UK, currency now has an impact on revenue and reduced growth during the quarter by about one percentage point. On a reported basis, revenue increased 13 percent to $141 million and EBIT increased one percent to $19 million. Solid growth in the volume of mail processed contributed to underlying revenue growth. While the benefits from operating leverage have been temporarily offset by the integration costs associated with acquisitions made in the U.S. and UK in 2008, the quarter's results reflect improvement in EBIT margin from these sites.
Marketing Services revenue declined 17 percent to $41 million while EBIT increased 15 percent to $2 million. Revenue benefited from the strong performance of the postal change of address marketing program, but was negatively affected by the loss of revenue from the planned exit of the company's motor vehicle registration services program. Cost reduction initiatives and the exit from the motor vehicle registration services program resulted in EBIT margin improvement.
2009 Guidance
The company is adjusting the guidance it provided on February 5, 2009. The severity of the current economic environment has changed some customer behavior and has caused greater deferral of office technology capital investments. However, the company maintains a high percentage of contractual business, which provides recurring revenue, earnings and cash flow. In addition, the company's recent restructuring initiatives have reduced its fixed cost base and the company continues to take actions to further reduce its operating costs.
On a constant currency basis, the company expects 2009 revenue to decline in the range of 1 percent to 4 percent. On a reported basis, the company expects revenue to decline in the range of 6 percent to 9 percent, which includes an estimated negative 5 percent impact from currency when compared with 2008. The company expects adjusted earnings per diluted share from continuing operations for the year will be in the range of $2.40 to $2.60. This range includes the expected negative impact of $0.30 to $0.35 per diluted share from currency and incremental pension expense. Adjusted earnings per diluted share from continuing operations excludes an annual estimated 6 cents per share non-cash tax charge associated with out-of-the-money stock options that expire principally in the first quarter of 2009. On a GAAP basis, the company expects earnings per diluted share from continuing operations for the year will be in the range of $2.34 to $2.54.
The company is reaffirming its free cash flow guidance in the range of $700 million to $800 million for the year, based on its strong cash flow performance in the first quarter.
In closing Mr. Martin noted, "We remain committed to enhancing our operational efficiency and reinvesting a portion of the savings from our cost reduction initiatives in future growth and enhanced customer value. We also have great confidence in our ability to deliver excellent cash flow. That is why we have maintained a high level of investment even as we have further reduced our operating costs across our businesses. We are focused on strengthening our position for long-term value creation and believe we are poised to generate strong, profitable growth when the economy begins to improve."
Management of Pitney Bowes will discuss the company's results in a broadcast over the Internet today at 5:00 p.m. EDT. Instructions for listening to the earnings results via the Web are available on the Investor Relations page of the company's web site at www.pb.com/investorrelations.
Pitney Bowes is a $6.3 billion global technology leader whose products, services and solutions deliver value within the mailstream and beyond. For more information about the company, its products, services and solutions, visit www.pitneybowes.com.
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