Premium global e-commerce solutions provider, Pitney Bowes Inc. (PBI) has been disappointing investors of late. The company continues to grapple with rise in total costs, along with a drab revenue performance. Let us delve deeper and try to find out why it would be wise to dump the stock from your portfolio at the moment.
Disappointing Fiscal Second Quarter 2017
Pitney Bowes reported adjusted earnings of 33 cents per share in second-quarter fiscal 2017, down 15.4% year over year. Performance in two of the company’s three segments, namely, Small and Medium Business (“SMB”) and Enterprise Business Solutions (“EBS”), declined year over year, proving a drag on top-line performance.
During second-quarter 2017, SMB Solutions revenues dipped 3% year over year to $436.4 million. The tepid performance was due to softness in the North American Mailing business (down 1%) and International Mailing Business (down 11%).This segment continues to suffer from lower recurring revenue streams and rental revenues. Additionally, a waning recurring revenues trajectory and poor equipment sales are making matters worse.
EBS revenues declined 4% year over year to $204.0 million. While Presort Services (up 2%) drove top-line growth of this segment, it was more than offset by the drab performance of the production mail business (down 11%). Uncertain global economic environment is anticipated to impact production mail and software businesses in the near term, consequently limiting the company’s growth momentum.
Decline in Software Sales
Though the Zacks Rank #4 (Sell) company adopted multiple measures to broaden the base of its business and boost profits at the software segment, fluctuations in license revenues remains as a major headwind. In general, licensed software businesses are always susceptible to swings based on large transactions. Given the scale of Pitney Bowes’ business, it remains vulnerable to those swings.
Over the last three months, PBI’s shares dropped 11.6%, wider than the industry’s average loss of 3.9%.
Moreover, the company’s current focus to drive growth by penetrating into new areas has put the margin performance under pressure in the short run.
Pitney Bowes has been experiencing a surge in operating expenses on account of ERP implementation in the United States and higher marketing expenses in relation to aggressive advertising as well as marketing strategies for strengthening brand value. The company expects marketing expense to be up on a year-over-year basis.
In addition, it expects incremental marketing expense in the ERP program, related to digital capabilities enhancement, for entire 2017. Also, capital expenses associated with the ERP project remains a drag. Till the benefits of ERP materialize, the company is anticipated to incur higher capital expenses that might exert pressure on margins.
The array of problems are limiting the company’s growth momentum, consequently putting Pitney Bowes’ investors in bumpier ride.
Stocks to Consider
Some better-ranked stocks from the same space are Apptio Inc. APTI, AMTEK, Inc. AME and Amphenol Corporation APH, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Apptio has surpassed estimates in the trailing four quarters, with an average positive earnings surprise of 32.5%.
AMTEK has outpaced estimates thrice in the preceding four quarters, with an average earnings surprise of 3.0%.
Amphenol Corporation has surpassed estimates in the trailing four quarters, with an average positive earnings surprise of 7.9%.
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