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Pitney Bowes (PBI) Up 0.6% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
Methode (MEI) has an impressive earnings surprise history and currently possesses the right combination of the two key ingredients for a likely beat in its next quarterly report.

It has been about a month since the last earnings report for Pitney Bowes (PBI). Shares have added about 0.6% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Pitney Bowes due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Pitney Bowes Lags Q4 Earnings Estimates, Guides Weak

Pitney Bowes reported fourth-quarter 2018 adjusted earnings of 38 cents per share lagging the Zacks Consensus Estimate by a couple of cents. However, the figure surged 18.8% year over year, primarily owing to higher revenues.

Total revenues increased 3.4% year over year to $947.1 million. Excluding favorable foreign currency exchange impact of approximately $6.8 million, revenues increased 4.1% to $953.9 million.

Quarter in Detail

Commerce services (46.2% of total revenues) grew 11.9% from the year-ago quarter (up 12% after adjusted for currency) to $437.6 million. While Global Ecommerce revenues improved 15.3% to $304.3 million, Presort Services increased 4.4% to $133.3 million.

Global Ecommerce revenues benefited from strong performance in parcel and fulfillment volumes. Moreover 23% revenue growth on a year-over-year basis in Newgistics aided segment performance.

Presort Services revenues improved on the back of increased volumes of First Class mail, Bound & Packet mail and Standard Class mail.

SMB Business solutions (43.5% of revenues) declined 6.7% year over year (down 6% after adjusted for currency) to $412.4 million.

North America Mailing revenues declined 6% to $320.9 million. Improvement in business and financing services could not completely mitigate the weakness in supplies, rentals and support services in North America Mailing domain.

International Mailing revenues also fell 10% to $91.5 million owing to declining equipment sales. This can be attributed to weakness across the U.K. and France. However, it was marginally offset by growth in Japan.

Software solutions (10.3% of revenues) advanced 16.6% year over year (up 19% after adjusted for currency) to $97.1 million. Increase in license revenues on account of strength across data and location intelligence domain drove growth. Improving SaaS revenues, positive impact from adoption of ASC 606, increase in smaller deal wins were other catalysts which aided segment performance in the reported quarter.

Operating Details

In the fourth quarter, adjusted EBITDA improved 19.2% from the year-ago quarter to $182.1 million. Adjusted EBITDA margin expanded 120 basis points (bps) on a year-over-year basis to 19.2%.

Segment EBITDA decreased 1% from the year-ago quarter to $220.4 million. Commerce services EBITDA declined 27% from the year-ago quarter to $35.6 million. SMB Business solutions EBITDA fell 1% year over year to $159.9 million. Software solutions EBITDA soared over 100% year over year to $24.9 million.

Segment EBIT decreased 2% from the year-ago quarter to $174.3 million.

Segment Commerce services EBIT plummeted 56% from the year-ago quarter to $12 million. Global Ecommerce reported a loss of almost $4.3 million compared with a loss of nearly $5 million in the year-ago quarter. Presort Services EBIT declined 40% to $16.7 million owing to higher labor and transportation costs, lower revenue per piece, and higher expenses pertaining to the introduction of marketing mail pilot program.

SMB Business solutions EBIT decreased 1% year over year to $139.2 million. Margins were impacted by lower equipment sales marginally offset by reduced expenses in SMB domain.

Software solutions EBIT soared over 100% year over year to $22.6 million. Higher sales favored margin expansion.

Adjusted EBIT margin expanded 120 bps to 13.8%.

Balance Sheet & Cash Flow

As of Dec 31, 2018, cash and cash equivalents (including short term investments) were $923.2 million as compared with $815.2 million at the end of the previous quarter.

Long-term debt (including current portion) was $3.27 billion almost flat compared with the figure reported at the end of previous quarter.

Net cash from operations was $102.7 million compared with $116 million in the previous quarter. Free cash flow came in at $153 million compared with $94 million in the prior reported quarter.

In the reported quarter, Pitney Bowes paid dividend worth $35 million to shareholders and incurred $14 million under restructuring payments.

The company trimmed dividend payments. On Feb 4, 2019, Pitney Bowes announced a quarterly cash dividend of 5 cents per share (compared with the earlier dividend of $0.1875) payable on Mar 11, 2019, to shareholders as on Feb15, 2019.

Notably, the company’s board of directors approved an additional $100 million in share repurchase, consequently bringing the total amount to $121 million for buyback.

2018 at a Glance

For the full year, adjusted earnings declined 1.7% year over year to $1.16 per share, which matched the Zacks Consensus Estimate.

In 2018, total revenues increased 12.8% over 2017 to $3.52 billion. Excluding favorable foreign currency exchange impact of approximately $12.8million, revenues increased 12.4% to $3.51 billion. This marks the second consecutive year of year-over-year growth in revenues.

Guidance

For 2019, Pitney Bowes expects revenues (after adjusted for foreign currency) to increase in the range of 1% to 4% over 2018.

Adjusted earnings are envisioned between $1.05 and $1.20 per share.

Free cash flow is anticipated between $225 million and $275 million.

Notably, on Jan 31, 2019, in a bid to enhance go-to-market strategy, Pitney Bowes inked a deal by which it intends to divest its SMB businesses based across six Europe countries — Sweden, Denmark, Norway, Finland, Italy and Switzerland — to BAVARIA Industries Group AG. Management anticipates that revenue growth will be impacted by almost $40 million.

Moreover, 10% tariff on China and uncertainty around trade relations between China and United States are anticipated to limit revenue growth and margin expansion.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.


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