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Pitney Bowes (PBI) Down 6.3% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Pitney Bowes (PBI). Shares have lost about 6.3% in that time frame, underperforming the S&P 500.

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

Pitney Bowes Beats on Q2 Earnings

Pitney Bowes delivered second-quarter 2019 adjusted earnings of 21 cents per share beating the Zacks Consensus Estimate by a penny. However, the figure declined 25% year over year.

The year-over-year decline in earnings can be attributed to reduction in revenues, primarily owing to weakness in mailing business and lower equipment sales.

Total revenues declined 0.5% year over year to $860.8 million. Excluding favorable foreign currency exchange impact of approximately $7.2 million, revenues of $868 million remained flat year over year.

Notably, in the past quarter, Pitney Bowes inked a deal to divest its SMB businesses based across six Europe countries — Sweden, Denmark, Norway, Finland, Italy and Switzerland — to BAVARIA Industries Group AG in a bid to enhance go-to-market strategy. This limited revenue growth by almost $6 million. Considering market exit impact, revenues (at cc) improved 2% year over year to $865.6 million.

Quarter in Detail

Commerce Services (47.7% of total revenues) improved 13% from the year-ago quarter (up 14% after adjusted for currency) to $410.5 million. Global Ecommerce revenues surged 18% to $282.3 million, while Presort Services of $128.1 million advanced 4% year over year.

Global Ecommerce revenues benefited from strong performance in shipping and parcel volumes. However, reduction in cross border volumes limited growth.

Presort Services revenues improved on the back of increased volumes of Flats processed and Marketing mail. Moreover, shift in mix led to higher revenue per piece, and reduction in labor costs aided growth.

SMB Solutions (43.9% of revenues) declined 8% year over year (down 7% after adjusted for currency) to almost $378.1 million. Revenues declined 4% when adjusted for both currency and exits from select Europe-based markets.

North America Mailing revenues declined 5% to $303.4 million. Notably, growth in business services couldn’t mitigate the decline in equipment sales and softness in recurring revenues.

Moreover, International Mailing revenues fell 20% to $74.7 million owing to impact of market exits and softness in services and supplies revenues. Further, weakness across the U.K. and Germany weighed on growth in France.

Software Solutions (8.4% of revenues) declined 21% year over year (down 20% after adjusted for currency) to $72.2 million. Reduction in license revenues, lesser renewal deals and softness in new license deal wins negatively impacted results. However, improving SaaS revenues, and increase in data subscriptions limited the revenue decline.

Operating Details

In the second quarter, adjusted EBITDA declined 17.1% from the year-ago quarter to $126.3 million. Adjusted EBITDA margin contracted 290 bps on a year-over-year basis to 14.7%.

Segment EBITDA decreased 15% from the year-ago quarter to $164.9 million. Commerce services EBITDA declined 17% from the year-ago quarter to $23.9 million. SMB solutions EBITDA fell 5% year over year to $136.6 million. Software solutions EBITDA plunged 79% year over year to $4.4 million.

Segment EBIT decreased 20% from the year-ago quarter to $126.6 million.

Commerce services EBIT came in at ($0.1 million) against the year-ago figure of $6.6 million. Global Ecommerce reported a loss of almost $15.6 million compared with a loss of nearly $6 million in the year-ago quarter, on account of business mix including lower margin services. However, Presort Services EBIT improved 23% to $15.5 million on the back of lower labor costs, and client mix that led to higher revenue per piece.

SMB solutions EBIT fell 6% year over year to $124.7 million. Margins were impacted by lower equipment sales and tariff costs. Notably, lower expenses limited the decline in margins.

Software solutions EBIT plummeted 89% year over year to $2 million owing to lower license revenues.

Adjusted EBIT margin contracted 330 bps to 9.6%.

Balance Sheet & Cash Flow

As of Jun 30, 2019, cash and cash equivalents (including short term investments) were $830.6 million compared with $904.3 million at the end of the previous quarter.

Long-term debt (including current portion) was $3.244 billion compared with $3.255 billion reported at the end of previous quarter.

Net cash from operations was $16.9 million compared with $69.7 million in the previous quarter. Free cash flow came in at $12.9 million compared with $31.5 million in the prior quarter.

In the reported quarter, Pitney Bowes returned $70 million to shareholders, which includes dividend payments worth $9 million and repurchase of 12 million shares worth $61 million.

The company incurred expenses of $6.1 million under restructuring payments and capital expenditures worth $32.4 million in the quarter.
 
Guidance

For 2019, the company maintained outlook. Pitney Bowes projects adjusted earnings between 90 cents and $1.05 per share. The company expects revenues (cc basis) to increase in the range of 1-3% over 2018. Free cash flow is anticipated between $200 million and $250 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

Currently, Pitney Bowes has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Pitney Bowes has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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