Pitney Bowes Q3 Results: Flat revenue growth in PBMS Division
Press release from the issuing company
STAMFORD, Conn., Oct. 23 -- Pitney Bowes Inc. today announced third quarter 2003 revenue and earnings performance in line with previous guidance.
Commenting on the quarter, Chairman and CEO Michael J. Critelli said, "We are pleased with the financial results that we achieved in the midst of lingering economic sluggishness worldwide. The strength of our business model is the ability to generate consistent earnings and cash from operations even in an unpredictable economy. During the quarter, we continued to implement our strategic imperatives to enhance our core businesses, streamline our infrastructure and execute our growth strategy. Key actions to enhance our future growth included our acquisition of the DDD Company earlier today, and continued investment in infrastructure improvements, organizational transformation and research and development."
Revenue for the quarter grew two percent to $1.14 billion and net income was $118.5 million or $.50 per diluted share. In January this year the company announced a restructuring program to implement its growth plan and estimated a total of $100 million in after-tax charges over the 2003-2004 period. There were $28 million in after-tax charges associated with the program during the quarter, bringing the total to approximately $62 million in after-tax charges year-to-date. Excluding the quarter's after-tax restructuring charge of $.12 per diluted share, third quarter diluted earnings per share were $.62.
Consistent with its previously announced strategy to exit large-ticket, non-core financing activity, the company's third quarter 2003 diluted earnings per share included $.04 per share from non-core Capital Services operations compared to $.06 per diluted share in the third quarter of 2002.
The company also generated $250 million in cash from operations during the quarter. Subtracting $76 million in capital expenditures and excluding $18 million in payments associated with the restructuring program, free cash flow was $192 million during the quarter. The company repurchased 1.3 million of its shares during the quarter for $50 million, leaving $160 million of authorization for future share repurchases in 2003 and 2004.
In the Global Mailing Segment, revenue increased three percent and operating profit increased four percent. In the U.S., organic revenue growth was flat during the quarter. The continued effects of a sluggish economy were offset by favorable market acceptance of the productivity-enhancing digital mailing systems and good placements of mail creation products. The PSI Group celebrated its first year anniversary as a Pitney Bowes company in August. The company experienced continued operating profit improvement with the integration of previously acquired processing sites into its growing national network.
Non-U.S. revenue grew at a double-digit rate as a result of favorable foreign currency exchange rates, but was flat on a local currency basis. Canada continued to have good revenue and operating profit growth driven by increased leasing of equipment, improved service revenue, and strong placements of high-end production mail systems. France experienced another quarter of excellent operating profit growth due to continued success in the integration of the Secap organization. In contrast, deteriorating economic conditions contributed to declining revenue in parts of Europe, such as Germany, and Asia.
The Enterprise Solutions Segment includes Pitney Bowes Management Services (PBMS) and Document Messaging Technologies (DMT). The segment reported one percent decline in revenue while operating profit grew one percent versus the prior year.
PBMS reported flat revenue growth of $248 million when compared to the prior year, while operating profit grew one percent. During the quarter, PBMS continued its actions to offset economic sensitivity by reducing general and administrative expenses and diversifying into other market segments such as federal and state governments. The acquisition of the DDD Company demonstrates PBMS' strategy to accelerate diversification into the potentially lucrative government sector as well as to expand cross-selling opportunities.
DMT reported revenue of $60 million for the quarter, a decrease of four percent from the prior year, but an increase of three percent from the prior quarter. Operating profit improved versus the prior year and versus the prior quarter. Even though orders for inserter equipment have been strong over the last several months, realization of these sales has been delayed due to the long lead times required to manufacture and deliver this customized equipment to customers.
Total Messaging Solutions, the combined results of the Global Mailing and Enterprise Solutions segments, showed a two percent increase in revenue and a four percent increase in operating profit.
In the Capital Services Segment, revenue for the quarter declined one percent while operating profit grew three percent. The segment benefited from the relatively good performance of core Capital Services assets, the sales of selected non-core Capital Services assets and continued low interest rates. Excluding the positive impact of lower interest expense, the earnings before interest and taxes (EBIT) for the segment declined by five percent compared to prior year. During the quarter, the company liquidated approximately $45 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 $58 million of assets from the portfolio during the quarter.
The company expects year-over-year revenue growth for the fourth quarter 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 fourth 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 $.65 to $.67 for the fourth quarter 2003.
In year-over-year comparisons, third quarter 2003 revenue included $322.1 million from sales of equipment and supplies, down three percent from the prior year; $214.7 million from rentals, up three percent; $134.6 million from core financing, flat with the prior year; $30.6 million from non-core financing down four percent; $275.8 million from business services, up six percent; and $159.3 million from support services, up eight percent. Net income for the quarter was $118.5 million, or $.50 per diluted share, down 18 percent compared to the third quarter of 2002. Included in net income for the period was a $43 million pre-tax restructuring charge. Excluding the after-tax impact of this charge, net income was $146.0 million and diluted earnings per share were $.62 in the third quarter of 2003, an increase of one percent compared to the prior year.
For the nine-month period ended September 30, 2003, total revenue was $3.36 billion, up four percent compared to 2002. Included in total revenue was $940.8 million from sales of equipment and supplies, down three percent; $640.4 million from rentals, up four percent; $404.9 million from core financing, up two percent; $87.0 million from non-core financing down 16 percent; $827.7 million from business services, up 12 percent; and $461.0 million from support services, up eight percent. Net income for the period was $351.3 million or $1.49 per diluted share down 14 percent compared to 2002. Included in net income for the period was $96 million in pre-tax restructuring charges. Excluding the after-tax impact of these charges, net income was $413.0 million and diluted earnings per share were $1.75, an increase of one percent versus the prior year.
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