PBI Q3 Adjusted Earnings Beat, Revs Lag
Pitney Bowes Inc. (PBI) reported third-quarter 2013 adjusted earnings per share of 49 cents, which was 22.5% above the Zacks Consensus Estimate of 40 cents. Quarterly earnings were up 11.4% year over year from 44 cents per share. The year-over-year increase was driven by the absence of any restructuring and asset impairments charges that impacted last year’s earnings.
The company reported a net loss of $5.5 million in the quarter compared to $76.5 million profit earned in the prior-year quarter. On GAAP basis, the company reported a loss of 3 cents owing to a 40 cents per share negative impact from discontinued operations. This loss was primarily a result of the taxes levied on the North America Management Services business, which the company divested in the last quarter.
Total Revenue
Total revenue for the third quarter was $938.8 million, down 1.2% from $949.8 million in the prior-year quarter. The top line was impacted by lower recurring revenues from the company’s SMB group and sluggish performance in its Enterprise Business Solutions.
However, there was considerable growth in the Digital Commerce Solutions segment. Also, the International Mailing revenues are seeing an uptrend driven by the continuous roll-outs of the new model in North America. The company also divested some of its non-performing assets including its non-core furniture business in Norway. Revenues for the quarter were below the Zacks Consensus Estimate of $955 million.
Segment Performance
Small and Medium Business Solutions (SMB) segment sales declined 4% year over year to $565 million, as a result of a 6% fall in North America Mailing revenues, which stood at $423 million. Revenues in International Mailing segment increased 1% to $142 million.
Enterprise Business Solutions segment sales remained flat at $222 million. The segment reported a 1% year-over-year increase in revenues from worldwide production mail. The worldwide production mail benefited from the installation of large production print in Asia Pacific and inserting equipment orders in North America. In addition, increased base of the production print installation also added to the company’s revenues. However, revenues of Presort Services declined 1% year over year to $105 million as revenues from higher first class mail volume were offset by those from lower direct mail volumes.
The Digital Commerce Solutions segment reported revenues of $152 million, a 9% year-over-year increase that was driven by a 5% improvement in Software revenues and greater than 20% increase in business services revenues. The marginal decline in Marketing services was offset by the performance of the business services. The key driver behind the growth of business services was larger volume of transactions in the e-commerce solutions provided by the company.
Expenses
The company incurred total SG&A expense of approximately $355.2 million in the quarter versus approximately $370.9 million in the third quarter of 2012. R&D expense was $24.8 million versus $30.2 million in the prior year quarter. Income from continuing operations of the company was $81.3 million compared with $92.5 million in the prior-year period. Lower income was attributable to higher interest expense and a higher cost of business services.
Balance Sheet
Exiting the quarter, cash and cash equivalents were $759.6 million, down from $913.2 million as of Dec 31, 2012. However, the long-term debt had decreased to $3.3 billion from $3.6 billion as of Dec 31, 2012. The shareholder’s equity significantly dropped to $11.2 million compared to prior-year figure of $110.6 million. Free cash flow for the quarter was $208 million.
The company has announced an early debt retirement by using the advances from the sale of its North America to repay its debts.
Outlook
Concurrent with the earnings release, Pitney reaffirmed its guidance for 2013.
For 2013, the company reaffirmed revenues, excluding the impact of currency, to range between a decline of 1% to a 2% increase year over year. The company increased adjusted earnings per share from continuing operations guidance from the range of $1.62 - $1.77 a share to $1.68 - $1.83, which includes a tax benefit of 6 cents per share recorded in the quarter. Free cash flow for 2013 is expected to be in the range of $575 million to $675 million, in line with the previous guidance range.
Pitney Bowes currently has a Zacks Rank #4 (Sell). However, some other companies that can be considered at the moment are Progress Software Corp. (PRGS), Ricoh Company Ltd. (RICOY) and Tyco International Ltd. (TYC). All three carry a Zacks Rank #2 (Buy).
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