Pitney Bowes Announces Third Quarter 2013 Results

Business Wire

STAMFORD, Conn.--(BUSINESS WIRE)--

Pitney Bowes Inc. (PBI) today reported financial results for the third quarter 2013.

HIGHLIGHTS

Results for the quarter:

  • Revenue of $939 million, which is a decline of 1% versus the prior year
    • Digital Commerce Solutions revenue grew 9% on a reported basis and 10% on a constant currency basis
  • Adjusted EPS from continuing operations of $0.49 per share
  • GAAP EPS from continuing operations of $0.38 per share; GAAP net loss of $0.03 per share
  • Free cash flow of $208 million for the quarter and $440 million year-to-date
  • GAAP cash from operations of $215 million for the quarter and $494 million year-to-date
  • Adjusted EBIT grew by 3.4% and EBIT margin improved by 0.8 % versus prior year
  • Established revised segment reporting
  • Company reaffirms revenue and cash flow guidance; updates GAAP EPS from continuing operations and Adjusted EPS guidance

Announcements:

  • Sale of North America Management Services business completed
  • Sale of Nordic furniture business completed
  • Company announced intent to redeem in November, $300 million of bonds scheduled to mature in 2014
  • Signed agreement to purchase joint-venture partner’s minority interest in Brazilian business
  • Signed agreement to sell World Headquarters building

“Our results reflect the aggressive actions we have taken, which are in line with our long-term strategy to deliver greater value for shareholders and clients,” said Marc Lautenbach, President and Chief Executive Officer. “We experienced higher growth in our Digital Commerce Solutions segment and continue to implement a phased roll-out of our new go-to-market model in North America that will enhance the selling capabilities of our Mailing business. We also exited a non-core furniture business in Norway, and will gain 100 percent ownership in our Brazilian subsidiary operations. Improving margins across the portfolio demonstrate our continued commitment to improving operational efficiency. We continued to use a portion of the savings generated from our reduced operating costs to invest in positioning our digital commerce solutions for growth. We also recently announced an early debt retirement, using the proceeds of the North America Management Services sale, to further strengthen our balance sheet.”

THIRD QUARTER 2013 RESULTS

Revenue for the quarter, excluding discontinued operations of the Nordic furniture business, was $939 million, which was a decline of 1% when compared to the prior year. This was similar to second quarter results despite a very strong second quarter comparison in Production Mail. Revenue for the quarter grew 9% in the Digital Commerce Solutions segment, was slightly positive in the Enterprise Business Solutions group and declined 4% in the Small and Medium Business Solutions group.

Adjusted earnings per diluted share from continuing operations for the quarter were $0.49 per share, which includes a $0.06 per share tax benefit primarily associated with an affiliate reorganization.

Earnings per diluted share from continuing operations, on a Generally Accepted Accounting Principles (GAAP) basis, were $0.38 per share, which includes a non-cash asset impairment charge of $0.08 per share related to the signed agreement to sell the Company’s headquarters building and a restructuring charge of $0.03 per share. Including the net loss in discontinued operations of $0.40 per share, primarily related to taxes on the sale of the North America Management Services business, there was a net loss of $0.03 per share on a GAAP basis.

                 

Earnings Per Diluted Share Reconciliation*

      Q3 2013       Q3 2012
Adjusted EPS from continuing operations       $0.49         $0.44  
Restructuring and asset impairments       (0.11 )       -
GAAP EPS from continuing operations       $0.38         $0.44  
Loss from discontinued operations       (0.40 )       (0.06 )
GAAP EPS       ($0.03 )       $0.38  

* The sum of the earnings per share may not equal the totals above due to rounding.

FREE CASH FLOW RESULTS

Free cash flow for the quarter was $208 million, while on a GAAP basis the Company generated $215 million in cash from operations. Free cash flow on a year-to-date basis was $440 million and the Company generated $494 million in cash from operations on a GAAP basis. During the quarter, the Company used $38 million of cash for dividends and $14 million for restructuring payments. Also, on October 2nd, the Company announced its election to redeem in November 2013, $300 million of bonds that were scheduled to mature in August 2014.

BUSINESS SEGMENT REPORTING

The Company revised its business segment reporting to reflect the clients served in each market and the way it manages these segments for growth and profitability. The reporting now includes: Small & Medium Business (SMB) Solutions group; Enterprise Business Solutions group; and Digital Commerce Solutions segment.

The Small and Medium Business (SMB) Solutions group offers mailing equipment, financing, services and supplies for small and medium businesses to efficiently create mail and evidence postage. This group includes the North America Mailing and International Mailing segments. North America Mailing includes the operations of U.S. and Canada Mailing. International Mailing includes all other SMB operations around the world.

The Enterprise Business Solutions group provides mailing equipment and services for large enterprise clients to process mail, including sortation services to qualify large mail volumes for postal worksharing discounts. This group includes the global Production Mail and Presort Services segments.

The Digital Commerce Solutions segment leverages digital and mobile channels that make the Company’s clients’ customer-facing functions more effective. This segment includes software, marketing services, Volly™ and ecommerce solutions.

SMB Solutions Group

                         
      3Q 2013       Y-O-Y Change       Change ex Currency
Revenue $565 million (4%) (4%)
EBIT       $183 million       2%        
 

Within the SMB Solutions Group:

 

North America Mailing

      3Q 2013       Y-O-Y Change       Change ex Currency
Revenue $423 million (6%) (5%)
EBIT       $167 million       (1%)        
 

During the quarter, North America Mailing equipment sales declined less than 1% versus the prior year, which was an improvement over prior quarter trends. Recurring revenue streams declined at a lesser rate than the third quarter last year, but at a slightly higher rate when compared to the second quarter this year due to lower financing and investment income on postage loans and deposits.

During the quarter, North America Mailing accelerated the implementation of a new go-to-market model. This strategy is expected to enhance the client experience and improve the sales process while reducing costs. EBIT margin improved versus the prior year as a result of ongoing cost reduction initiatives including the change in the go-to-market model.

 

International Mailing

      3Q 2013       Y-O-Y Change       Change ex Currency
Revenue $142 million 1% 1%
EBIT       $ 15 million       38%        
 

International Mailing revenue benefited from growth in equipment sales, supplies and support services in Europe, and increased meter placements in India. Revenue in Europe grew 2 percent when compared to the prior year as the end–markets in this region continued to experience stabilization in meter population trends. EBIT margin improved versus the prior year as a result of ongoing cost reduction initiatives.

Enterprise Solutions Group

                         
      3Q 2013       Y-O-Y Change       Change ex Currency
Revenue $222 million 0% 1%
EBIT       $ 31 million       6%        
 

Within the Enterprise Business Solutions Group:

 

Worldwide Production Mail

      3Q 2013       Y-O-Y Change       Change ex Currency
Revenue $116 million 1% 2%
EBIT       $ 11 million       5%        
 

Production Mail revenue benefited from the installation of inserting equipment in North America and a production printer installation in the Asia Pacific region. Supplies revenue grew as a result of the increased base of production print installations. Revenue growth was partially offset by lower support services revenue. EBIT margin improved versus the prior year due to the growth in revenue and gross margin.

 

Presort Services

      3Q 2013       Y-O-Y Change       Change ex Currency
Revenue $105 million (1%) (1%)
EBIT       $ 20 million       6%        
 

Presort Services revenue declined slightly compared to the prior year as a result of lower direct mail volumes offsetting higher first class mail volume related revenue. EBIT margin improved versus the prior year due to operating expense reductions.

Digital Commerce Solutions

                         
      3Q 2013       Y-O-Y Change       Change ex Currency
Revenue $152 million 9% 10%
EBIT       $ 10 million       243%        
 

Digital Commerce Solutions benefited from a 5% increase in software revenue and more than a 20% increase in business services revenue. The growth in business services revenue was primarily driven by an increase in transactions associated with the Company’s ecommerce solutions for cross-border package delivery; however that revenue growth was partially offset by declines in marketing services revenue. EBIT margin improved significantly due to a lower cost structure, primarily in software solutions.

2013 GUIDANCE UPDATE

This guidance discusses future results which are inherently subject to unforeseen risks and developments. As such, discussions about the business outlook should be read in the context of an uncertain future, as well as the risk factors identified in the safe harbor language at the end of this release and as more fully outlined in the Company's 2012 Form 10-K Annual Report and other reports filed with the Securities and Exchange Commission.

The Company is reaffirming its 2013 annual guidance as follows:

  • Revenue, excluding the impacts of currency, to be in the range of a 1 percent decline to 2 percent growth when compared to 2012, and
  • Free cash flow to be in the range of $575 million to $675 million.

The Company is updating its 2013 annual earnings per share guidance to reflect restructuring and asset impairment charges and tax benefits recorded in the third quarter, as well as expected costs related to debt retirement in the fourth quarter. The updated 2013 annual guidance follows:

  • Adjusted earnings per diluted share to be in the range of $1.68 to $1.83, which includes:
    • $0.06 per share tax benefit recorded in the quarter
  • GAAP earnings per diluted share from continuing operations to be in the range of $1.39 to $1.54, which includes:
    • $0.10 per share restructuring charges recorded to date;
    • $0.08 per share asset impairment charge related to the signed agreement to sell the Company’s headquarters building;
    • $0.08 per share charge for costs associated with the first quarter debt tender, and
    • $0.03 per share charge related to net costs associated with the planned early redemption of $300 million of debt in the fourth quarter.

This guidance excludes any additional restructuring actions that may occur as the Company implements plans to further streamline its operations and reduce costs.

Conference Call and Webcast

Management of Pitney Bowes will discuss the Company’s results in a broadcast over the Internet today at 8:00 a.m. EDT. For more information on the Company and instructions for listening to the earnings results, please visit the Investor Relations page of the Company’s web site at www.pb.com.

The Company's financial results are reported in accordance with generally accepted accounting principles (GAAP). The Company uses measures such as adjusted earnings per share, adjusted income from continuing operations and free cash flow to exclude the impact of special items like restructuring charges, tax adjustments, and goodwill and asset write-downs, because, while these are actual Company expenses, they can mask underlying trends associated with our business. Such items are often inconsistent in amount and frequency and as such, the adjustments allow an investor greater insight into the current underlying operating trends of the business.

The use of free cash flow provides investors insight into the amount of cash that management could have available for other discretionary uses. It adjusts GAAP cash from operations for capital expenditures, as well as special items like cash used for restructuring charges, unusual tax payments and contributions to its pension funds. Management uses segment EBIT to measure profitability and performance at the segment level. EBIT is determined by deducting the related costs and expenses attributable to the segment. Segment EBIT excludes interest, taxes, general corporate expenses not allocated to a particular business segment, restructuring charges and goodwill and asset impairments, which are recognized on a consolidated basis. In addition, financial results are presented on a constant currency basis to exclude the impact of changes in foreign currency exchange rates since the prior period under comparison. Constant currency measures are intended to help investors better understand the underlying operational performance of the business excluding the impacts of shifts in currency exchange rates over the intervening period.

Pitney Bowes has provided a quantitative reconciliation to GAAP in supplemental schedules. This information may also be found at the Company's web site www.pb.com/investorrelations.

This document contains “forward-looking statements” about our expected or potential future business and financial performance. For us forward-looking statements include, but are not limited to, statements about our future revenue and earnings guidance and other statements about future events or conditions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to: mail volumes; the uncertain economic environment; timely development, market acceptance and regulatory approvals, if needed, of new products; fluctuations in customer demand; changes in postal regulations; interrupted use of key information systems; management of outsourcing arrangements; changes in business portfolio; foreign currency exchange rates; changes in our credit ratings; management of credit risk; changes in interest rates; the financial health of national posts; and other factors beyond our control as more fully outlined in the Company's 2012 Form 10-K Annual Report and other reports filed with the Securities and Exchange Commission. Pitney Bowes assumes no obligation to update any forward-looking statements contained in this document as a result of new information, events or developments.

Note: Consolidated statements of income; revenue and EBIT by business segment; and reconciliation of GAAP to non-GAAP measures for the three and nine months ended September 30, 2013 and 2012, and consolidated balance sheets at September 30, 2013 and December 31, 2012 are attached.

               
Pitney Bowes Inc.
Consolidated Statements of Income

(Unaudited)

 
(Dollars in thousands, except per share data)
Three months ended September 30, Nine months ended September 30,
2013 2012 2013 2012
Revenue:
Equipment sales $ 201,830 $ 199,609 $ 634,779 $ 618,620
Supplies 69,696 66,878 216,254 213,665
Software 98,164 93,476 285,658 302,377
Rentals 128,225 137,149 391,590 414,922
Financing 113,955 123,999 346,646 373,695
Support services 166,785 176,769 505,226 529,615
Business services   160,131     151,909     458,061     446,654  
 
Total revenue   938,786     949,789     2,838,214     2,899,548  
 
Costs and expenses:
Cost of equipment sales 92,307 95,008 307,992 278,457
Cost of supplies 21,840 20,689 67,794 65,423
Cost of software 29,698 29,227 80,093 85,023
Cost of rentals 25,612 25,182 79,791 87,258
Financing interest expense 20,306 19,604 59,979 61,385
Cost of support services 103,004 107,074 315,275 334,274
Cost of business services 112,447 103,230 322,970 298,689
Selling, general and administrative 355,202 370,935 1,067,394 1,111,144
Research and development 24,769 30,226 81,351 87,810
Restructuring charges and asset impairments 34,909 - 53,940 (980 )
Other interest expense 27,508 27,541 89,594 87,261
Interest income (1,457 ) (2,057 ) (4,507 ) (5,793 )
Other expense, net   -     -     25,121     1,138  
 
Total costs and expenses   846,145     826,659     2,546,787     2,491,089  
 
Income from continuing operations before income taxes 92,641 123,130 291,427 408,459
 
Provision for income taxes   11,370     30,590     55,530     85,108  
 
Income from continuing operations 81,271 92,540 235,897 323,351
 
(Loss) income from discontinued operations, net of tax   (82,204 )   (11,413 )   (169,369 )   25,257  
 
Net (loss) income before attribution of noncontrolling interests (933 ) 81,127 66,528 348,608
 
Less: Preferred stock dividends of subsidiaries attributable
to noncontrolling interests   4,594     4,594     13,782     13,782  
 
Net (loss) income - Pitney Bowes Inc. $ (5,527 ) $ 76,533   $ 52,746   $ 334,826  
 
 
Amounts attributable to common stockholders:
Income from continuing operations $ 76,677 $ 87,946 $ 222,115 $ 309,569
(Loss) income from discontinued operations   (82,204 )   (11,413 )   (169,369 )   25,257  
 
Net (loss) income - Pitney Bowes Inc. $ (5,527 ) $ 76,533   $ 52,746   $ 334,826  
 
Basic earnings per share attributable to common stockholders (1):
Continuing operations 0.38 0.44 1.10 1.55
Discontinued operations   (0.41 )   (0.06 )   (0.84 )   0.13  
 
Net (loss) income - Pitney Bowes Inc. $ (0.03 ) $ 0.38   $ 0.26   $ 1.67  
 
Diluted earnings per share attributable to common stockholders (1):
Continuing operations 0.38 0.44 1.10 1.54
Discontinued operations   (0.40 )   (0.06 )   (0.84 )   0.13  
 
Net (loss) income - Pitney Bowes Inc. $ (0.03 ) $ 0.38   $ 0.26   $ 1.66  
 

(1) The sum of the earnings per share amounts may not equal the totals above due to rounding.

(2) Certain prior year amounts have been reclassified to conform to the current year presentation

       
Pitney Bowes Inc.
Consolidated Balance Sheets

(Unaudited in thousands, except per share data)

 

Assets

September 30,

2013

December 31,

2012

Current assets:
Cash and cash equivalents $ 759,636 $ 913,276
Short-term investments 20,471 36,611
 
Accounts receivable, gross 433,265 748,469
Allowance for doubtful accounts receivable   (15,230 )   (20,219 )
Accounts receivable, net 418,035 728,250
 
Finance receivables 1,145,075 1,213,776
Allowance for credit losses   (25,007 )   (25,484 )
Finance receivables, net 1,120,068 1,188,292
 
Inventories 134,266 179,678
Current income taxes 28,419 51,836
Other current assets and prepayments 173,068 114,184
Assets held for sale   550,641     -  
 
Total current assets 3,204,604 3,212,127
 
Property, plant and equipment, net 240,609 385,377
Rental property and equipment, net 230,098 241,192
 
Finance receivables 958,517 1,041,099
Allowance for credit losses   (11,489 )   (14,610 )
Finance receivables, net 947,028 1,026,489
 
Investment in leveraged leases 34,858 34,546
Goodwill 1,729,178 2,136,138
Intangible assets, net 128,588 166,214
Non-current income taxes 96,714 94,434
Other assets   538,255     563,374  
 
Total assets $ 7,149,932   $ 7,859,891  
 

Liabilities, noncontrolling interests and stockholders' equity

Current liabilities:
Accounts payable and accrued liabilities $ 1,501,189 $ 1,809,226
Current income taxes 291,930 240,681
Notes payable and current portion of long-term obligations 299,570 375,000
Advance billings 418,231 452,130
Liabilities held for sale   118,177     -  
 
Total current liabilities 2,629,097 2,877,037
 
Deferred taxes on income 19,192 69,222
Tax uncertainties and other income tax liabilities 157,102 145,881
Long-term debt 3,351,020 3,642,375
Other non-current liabilities   685,914     718,375  
 
Total liabilities   6,842,325     7,452,890  
 
Noncontrolling interests (Preferred stockholders' equity in subsidiaries) 296,370 296,370
 
Stockholders' equity:
Cumulative preferred stock, $50 par value, 4% convertible 4 4
Cumulative preference stock, no par value, $2.12 convertible 608 648
Common stock, $1 par value 323,338 323,338
Additional paid-in-capital 201,643 223,847
Retained Earnings 4,646,593 4,744,802
Accumulated other comprehensive loss (696,593 ) (681,213 )
Treasury Stock, at cost   (4,464,356 )   (4,500,795 )
 
Total Pitney Bowes Inc. stockholders' equity   11,237     110,631  
 
Total liabilities, noncontrolling interests and stockholders' equity $ 7,149,932   $ 7,859,891  
 
           
Pitney Bowes Inc.
Revenue and EBIT
Business Segments
September 30, 2013

(Unaudited)

 
(Dollars in thousands) Three Months Ended September 30,
%
2013 2012 Change

Revenue

 
North America Mailing $ 422,821 447,920 (6 %)
International Mailing   142,443     141,630   1 %
Small & Medium Business Solutions   565,264     589,550   (4 %)
 
Production Mail 116,477 114,889 1 %
Presort Services   105,093     105,909   (1 %)
Enterprise Business Solutions   221,570     220,798   0 %
 
Digital Commerce Solutions   151,952     139,441   9 %
 
Total revenue $ 938,786   $ 949,789   (1 %)
 

EBIT (1)

 
North America Mailing $ 167,433 $ 168,934 (1 %)
International Mailing   15,456     11,206   38 %
Small & Medium Business Solutions   182,889     180,140   2 %
 
Production Mail 10,620 10,125 5 %
Presort Services   20,398     19,167   6 %
Enterprise Business Solutions   31,018     29,292   6 %
 
Digital Commerce Solutions   10,196     2,971   243 %
 
Total EBIT $ 224,103 $ 212,403 6 %
 
Unallocated amounts:
Interest, net (2) (46,357 ) (45,088 )
Corporate and other expenses (50,196 ) (44,185 )
Restructuring and asset impairments   (34,909 )   -  
 
Income from continuing operations before income taxes $ 92,641   $ 123,130  
 
(1)   Earnings before interest and taxes (EBIT) excludes general corporate expenses and restructuring charges and asset impairments.
(2) Interest, net includes financing interest expense, other interest expense and interest income.
 
           
Pitney Bowes Inc.
Revenue and EBIT
Business Segments
September 30, 2013

(Unaudited)

 
(Dollars in thousands) Nine Months Ended September 30,
%

 

2013 2012 Change

Revenue

 
North America Mailing $ 1,286,085 1,362,709 (6 %)
International Mailing   448,684     449,583   (0 %)
Small & Medium Business Solutions   1,734,769     1,812,292   (4 %)
 
Production Mail 360,352 337,582 7 %
Presort Services   322,954     322,401   0 %
Enterprise Business Solutions   683,306     659,983   4 %
 
Digital Commerce Solutions   420,139     427,273   (2 %)
 
Total Revenue $ 2,838,214   $ 2,899,548   (2 %)
 

EBIT (1)

 
North America Mailing $ 488,301 $ 514,975 (5 %)
International Mailing   52,967     51,670   3 %
Small & Medium Business Solutions   541,268     566,645   (4 %)
 
Production Mail 34,239 28,439 20 %
Presort Services   65,132     82,728   (21 %)
Enterprise Business Solutions   99,371     111,167   (11 %)
 
Digital Commerce Solutions   20,134     23,674   (15 %)
 
Total EBIT $ 660,773 $ 701,486 (6 %)
 
Unallocated amounts:
Interest, net (2) (145,066 ) (142,853 )
Corporate and other expenses (170,340 ) (151,154 )
Restructuring and asset impairments   (53,940 )   980  
 
Income from continuing operations before income taxes $ 291,427   $ 408,459  
 
(1)   Earnings before interest and taxes (EBIT) excludes general corporate expenses and restructuring charges and asset impairments and other income, net.
(2) Interest, net includes financing interest expense, other interest expense and interest income.
 
               
Pitney Bowes Inc.
Reconciliation of Reported Consolidated Results to Adjusted Results
(Unaudited)
 
(Dollars in thousands, except per share data)
 
Three Months Ended September 30, Nine Months Ended September 30,
2013 2012 2013 2012
 
GAAP income from continuing operations
after income taxes, as reported $ 76,677 $ 87,946 $ 222,115 $ 309,569
Restructuring charges and asset impairments 22,536 - 35,662 (1,150 )
Sale of leveraged lease assets - - - (12,886 )
Extinguishment of debt   -     -     15,325     -  
Income from continuing operations
after income taxes, as adjusted $ 99,213   $ 87,946   $ 273,102   $ 295,533  
 
 
GAAP diluted earnings per share from
continuing operations, as reported $ 0.38 $ 0.44 $ 1.10 $ 1.54
Restructuring charges and asset impairments 0.11 - 0.18 (0.01 )
Sale of leveraged lease - - - (0.06 )
Extinguishment of debt   -     -     0.08     -  
Diluted earnings per share from continuing
operations, as adjusted $ 0.49   $ 0.44   $ 1.35   $ 1.47  
 
 
GAAP net cash provided by operating activities,
as reported $ 214,526 $ 64,796 $ 493,561 $ 404,628
Capital expenditures (29,951 ) (39,065 ) (103,392 ) (127,816 )
Restructuring payments 14,098 12,871 41,353 60,746
Pension contribution - - - 95,000
Tax payments on sale of leveraged lease assets - 14,345 - 99,249
Reserve account deposits 9,227 (17,707 ) (16,962 ) (15,373 )
Extinguishment of debt - - 25,121 -
       
Free cash flow, as adjusted $ 207,900   $ 35,240   $ 439,681   $ 516,434  
 
 
Note: The sum of the earnings per share amounts may not equal the totals above due to rounding.
 
 
Pitney Bowes Inc.
Reconciliation of Reported Consolidated Results to Adjusted Results
(Unaudited)
           
(Dollars in thousands, except per share data)
 
Three Months Ended September 30, Nine Months Ended September 30,
2013 2012 2013 2012
 

GAAP income from continuing

operations after income taxes,

as reported

$ 76,677 $ 87,946 $ 222,115 $ 309,569
Restructuring charges and asset impairments 22,536 - 35,662 (1,150 )
Extinguishment of debt - - 15,325 -
Sale of leveraged lease assets       -   -   -   (12,886 )
Income from continuing operations
after income taxes, as adjusted 99,213 87,946 273,102 295,533
Provision for income taxes, as adjusted 23,743 30,590 83,605 101,981
Preferred stock dividends of subsidiaries

attributable to noncontrolling interests

      4,594   4,594   13,782   13,782  
Income from continuing operations, as adjusted 127,550 123,130 370,489 411,296
Interest expense, net       46,357   45,088   145,066   142,853  
Adjusted EBIT 173,907 168,218 515,555 554,149
Depreciation and amortization       53,675   59,900   167,377   191,507  
Adjusted EBITDA     $ 227,582 $ 228,118 $ 682,932 $ 745,656  
 

Contact:
Pitney Bowes Inc.
Editorial
Sheryl Y. Battles, 203-351-6808
VP, Corp. Communications
or
Financial
Charles F. McBride, 203-351-6349
VP, Investor Relations
or
Website – www.pitneybowes.com

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