NEW YORK (AP) -- Shares of Pitney Bowes Inc. rallied Friday after skidding to a 52-week low on a drop in quarterly revenue at the provider of equipment and services for mail and shipping.
THE SPARK: The company increased its forecast of free cash flow in 2012 by $50 million, to a range between $700 million and $800 million.
Ananda Baruah, an analyst for Brean Murray, Carret & Co., said the stock "tends to trade on cash flow, so we'd think the reaction in trading isn't severe."
Cash flow is key for investors who value Pitney Bowes' dividend, because the company directs about 40 percent of cash flow to the dividend, according to Deutsche Bank analyst Chris Whitmore.
After the market closed Thursday, Pitney Bowes reported that second-quarter profit fell 1 percent and revenue dropped 5 percent as sales fell in both its mail segment and the software and management services unit.
Noting Europe's economic problems, the company lowered its forecast of full-year earnings and revenue. It now expects earnings excluding special items to be $1.95 to $2.15 per share, down from an earlier estimate of $2.05 to $2.25 per share, and it expects revenue will be flat to down 4 percent instead of the earlier range of up 2 percent to down 2 percent.
BIG PICTURE: The Stamford, Conn.-based company has struggled to adjust to the decline in U.S. mail against competition from e-mail and private packet deliveries.
Moody's Investors Service downgraded the company's credit in April, citing the cost of potential acquisitions to offset the decline in its legacy mail business. In May, Standard & Poor's lowered its outlook on Pitney Bowes to "negative" from "stable" because of high debt and the challenge of stabilizing revenue as mail continues to fall out of favor.
THE ANALYSIS: Brean Murray lowered its estimate of Pitney Bowes' 2012 earnings to $2 per share from $2.10 per share. But, analyst Baruah said, if the company can generate as much cash as it says, it will cover the "very attractive" 11 percent dividend for 2013.
"We don't view the dividend as currently at risk," Baruah wrote in a note to clients.
Deutsche Bank also cut its earnings forecast, to $2 per share from $2.05. Analyst Whitmore said the company's revenue growth and profit will remain under pressure from soft equipment placements and weak mail growth.
Whitmore said Pitney Bowes management "is committed and capable of defending the dividend though at least 2014," but long-term trends could hurt the company's ability to sustain cash-flow generation.
SHARE ACTION: Pitney Bowes shares rose 91 cents, or 7 percent, to $13.85 in afternoon trading. They have ranged between $12.64 and $21.20 in the past year and have been stair-stepping downward since the peak in November.