Pitney Bowes Inc. PBI reported third-quarter 2019 adjusted earnings of 24 cents per share beating the Zacks Consensus Estimate by 14.3%. However, the figure declined 11.1% year over year.
Total revenues improved 3.9% year over year to $790.1 million. Adjusting for foreign currency exchange impact of approximately $4.1 million, revenues of $794.2 million were up 4.5% year over year.
Notably, Pitney Bowes has divested its SMB businesses based across six European 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 $1.5 million. Considering impact from currency and market exit, revenues (at cc) improved 6% year over year to $792.7 million.
Share Price Performance
Following the third-quarter earnings beat and promising 2019 earnings guidance, shares of the company were up around 7.1% on Nov 5.
For 2019, Pitney Bowes projects adjusted earnings between 65 cents and 75 cents per share, the mid-point of which — 70 cents — is above the current Zacks Consensus Estimate of 66 cents.
Notably, Pitney Bowes stock has fallen 7.8% year to date against the industry’s growth of 0.6%.
Revised Reporting Structure
During the reported quarter, Pitney Bowes inked a deal with Syncsort to divest its Software Solutions business for $700 million in cash, in a bid to optimize portfolio. The transaction is expected to close before the end of the calendar year. Management stated that proceeds from the sale will be utilized to lower debt burden.
Effective in the reported quarter, financials pertaining to Software Solutions business will be recorded under discontinued operations. Pitney Bowes also restructured segment reporting to merge the International Mailing and North America Mailing segments under the new Sending Technology Solutions (or SendTech Solutions) segment.
Quarter in Detail
Commerce Services (52% of total revenues) improved 15% from the year-ago quarter (up 15% after adjusted for currency) to $410.5 million. Global Ecommerce revenues surged 20% to almost $279 million, while Presort Services of $131.5 million improved 5% year over year.
Global Ecommerce revenues benefited from strong performance of domestic parcel platform. Presort Services revenues improved on the back of increased volumes across Marketing Mail, First Class Mail, and Bound and Packet Mail.
Sending Technology Solutions (48% of revenues) declined 6% year over year (down 5% after adjusted for currency) to $379.6 million. Revenues declined 3% when adjusted for both currency and exits from select Europe-based markets.
Impact from market exits, lower revenues from supplies, support services and financing weighed on the segmental performance. Nonetheless, higher equipment sales and improvement in business services limited the decline.
In the third quarter, adjusted EBITDA declined 18.2% from the year-ago quarter to $109.1 million. Adjusted EBITDA margin contracted 370 bps on a year-over-year basis to 13.8%.
Segment EBITDA decreased 5% from the year-ago quarter to $161.5 million. Commerce Services EBITDA declined 17% from the year-ago quarter to $20.9 million. Sending Technology Solutions EBITDA dropped 2% year over year to $140.5 million.
Segment EBIT declined 8% from the year-ago quarter to $126.8 million.
Commerce Services EBIT came in at ($4.1 million) against the year-ago figure of $3.1 million. Global Ecommerce EBIT came in at ($21.8 million) compared with ($14.3 million) in the year-ago quarter, on account of business mix including lower margin services and higher investments. However, Presort Services EBIT inched up 1.4% to $17.7 million on the back of lower labor costs, which offset client mix that led to lower revenue per piece.
Sending Technology Solutions EBIT fell 3% year over year to approximately $131 million on higher tariff costs. Notably, lower expenses limited the decline.
Adjusted EBIT margin contracted 400 bps to 8.7%.
Pitney Bowes Inc. Price, Consensus and EPS Surprise
Pitney Bowes Inc. price-consensus-eps-surprise-chart | Pitney Bowes Inc. Quote
Balance Sheet & Cash Flow
As of Sep 30, 2019, cash and cash equivalents (including short term investments) were $651.9 million compared with $830.6 million at the end of the previous quarter.
Long-term debt (including current portion) was $3.069 billion, down from $3.244 billion reported at the end of previous quarter.
Net cash from operations was $95.5 million compared with $16.9 million in the previous quarter. Free cash flow came in at $69.3 million compared with $12.9 million in the prior quarter.
In the reported quarter, Pitney Bowes returned $14 million to shareholders, which includes dividend payments worth $9 million and repurchase of 1 million shares worth $5 million.
The company incurred expenses of $5.8 million under restructuring payments and capital expenditures worth $36 million in the quarter.
For 2019, Pitney Bowes projects revenues (cc basis) to increase in the range of 1-2% over 2018.
Free cash flow is anticipated between $175 million and $205 million.
Zacks Rank & Stocks to Consider
Pitney Bowes currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader technology sector worth considering are Alteryx, Inc. AYX, Instructure, Inc. INST and Zendesk, Inc. ZEN. All the three stocks flaunt a Zacks Rank #1 (Strong buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Alteryx, Instructure and Zendesk is currently pegged at 39.85%, 30% and 29.52%, respectively.
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