Pitney Bowes Announces Third Quarter Results for 2010
STAMFORD, Conn.--(BUSINESS WIRE)-- Pitney Bowes Inc. (NYSE:PBI) today reported third quarter 2010 results.
Revenue for the quarter was $1.3 billion, which was flat to the prior year excluding the impact of foreign currency and declined one percent including the effects of currency. When compared to the third quarter of 2009, revenue benefited from 10 percent increases in both equipment sales and software revenue but was also affected by lower financing, rental and supplies revenue due to lower equipment sales in prior periods. Adjusted earnings per diluted share from continuing operations for the third quarter was $0.55 compared with $0.55 for the prior year. Earnings per diluted share for the quarter on a Generally Accepted Accounting Principles (GAAP) basis was $0.43 compared with $0.50 per diluted share for the prior year. GAAP earnings per diluted share for the quarter included a $0.10 charge for restructuring costs associated with the company's strategic transformation initiatives and a $0.01 loss associated with discontinued operations. Adjusted earnings per diluted share for the quarter included a three cent per share favorable adjustment related to a leveraged lease portfolio in Canada. This benefit helped offset higher international shipping costs in the mail services segment related to the company's expansion in the e-commerce parcel space.
Free cash flow for the quarter was $221 million, while on a GAAP basis, the company generated $243 million in cash from operations. Free cash flow benefited from $32 million of cash proceeds from the monetization of an interest rate swap position during the quarter and lower finance receivables. During the quarter, the company used $77 million of cash for dividends and $100 million of cash to buyback 4.7 million of its common shares. Year-to-date, the company has generated $673 million in free cash flow and on a GAAP basis $667 million in cash from operations, which was used primarily to pay dividends, buyback shares, make restructuring payments, and reduce debt.
The company's results for the quarter are summarized in the table below:
Third Quarter*
Adjusted EPS $0.55
Restructuring and Asset Impairments ($0.10)
GAAP EPS from Continuing Operations $0.44
Discontinued Operations ($0.01)
GAAP EPS $0.43
*The sum of the earnings per share does not equal the totals above due to rounding.
Commenting on the quarter, Chairman, President and CEO Murray D. Martin said, "We are encouraged by the improvement we saw in equipment sales this quarter in our global Mailing and U.S. Production Mail businesses and by the growth in software revenue. Our new Connect+(TM) web-based mailing system is being very well received by our customers and we expect it to be a key component in driving future mailing equipment sales. Positive equipment sales growth is an important early indicator of improvement in our businesses which serve the SMB market.
"While the economic recovery remains uncertain for some of our smaller customers, we are starting to see some signs of improved business confidence and spending in our customer base, especially among our larger enterprise customers in the U.S. This was evidenced by increased mail volumes processed by our Mail Services business and improved demand for our Software solutions and Production Mail equipment."
Business Segment Results
The company aggregates its business segments into two groups based on the customers it primarily serves: Small and Medium Business (SMB) Solutions and Enterprise Business Solutions. The SMB Solutions group consists of the company's global Mailing operations. The Enterprise Business Solutions group includes the company's global Production Mail, Software, Management Services, Mail Services and Marketing Services operations.
SMB Solutions
3Q 2010 Y-O-Y Change Change ex Currency
Revenue $690 million (4%) (3%)
EBIT $209 million 1%
Within the SMB Solutions Group:
U.S. Mailing
3Q 2010 Y-O-Y Change Change ex Currency
Revenue $462 million (6%) (6%)
EBIT $170 million (5%)
During the quarter, U.S. Mailing experienced improved sales among its mid-and larger-sized customers, although small business customers remained cautious about spending. Improving conditions among mid and larger-sized customers, plus the availability of the new Connect+ (TM) mailing system, resulted in a 5 percent year-over-year increase in equipment sales. This was the first increase in mailing equipment sales in seven quarters. The segment's overall revenue was affected, as expected, by lower rental and financing revenue as a result of lower sales in prior periods. EBIT margin improved by 50 basis points versus the prior year, benefiting from past and ongoing productivity improvements related to the company's strategic transformation program; lower credit losses; and recent lease extensions. Lease extensions are designed to enhance customer retention and result in improved profitability.
International Mailing
3Q 2010 Y-O-Y Change Change ex Currency
Revenue $228 million 1% 4%
EBIT $ 39 million 33%
International Mailing revenue grew both on a reported basis and excluding the impact of foreign currency when compared with the prior year. The segment had double-digit growth for equipment sales during the quarter, driven by the sale of postal rate updates for scales in France. A similar postal rate update occurred in France in the first quarter of 2009. Excluding the impact of the rate change revenue, International Mailing still had high single-digit growth in equipment sales versus the prior year. As in the U.S., financing and rental revenue declined as a result of lower equipment sales in prior periods. EBIT improved versus the prior year in part due to past and ongoing productivity initiatives, as well as the favorable adjustment in a leveraged lease portfolio in Canada. These factors were offset in part by the negative margin impact from lower financing revenue.
Enterprise Business Solutions
3Q 2010 Y-O-Y Change Change ex Currency
Revenue $656 million 2% 3%
EBIT $ 70 million 1%
Within the Enterprise Business Solutions Group:
Worldwide Production Mail
3Q 2010 Y-O-Y Change Change ex Currency
Revenue $135 million 7% 8%
EBIT $15 million 33%
During the quarter, increased demand for the company's high-speed, high integrity inserting systems, especially in the United States, helped drive revenue growth and a higher backlog of customer orders when compared with the prior year. Revenue also benefited from the installation of the first Intellijet(TM) color production printing system from the company's technology distribution partnership with HP. EBIT margin improved by 220 basis points propelled by current and ongoing productivity initiatives that increased margin leverage from revenue growth.
Software
3Q 2010 Y-O-Y Change Change ex Currency
Revenue $ 92 million 11% 12%
EBIT $ 8 million (3%)
During the quarter, the Software business experienced increased demand for its software solutions, including data management, analytics and CRM. As a result, revenue increased versus the prior year as the company delivered more of these solutions to its customers. The company continued its transition to annuity-based pricing for selected software solutions and plans expansion of its SaaS offerings and recurring revenue streams from term licenses. The company also completed its planned acquisition of Portrait Software plc during the quarter, which will further enhance the company's analytics and customer communications management capabilities. Excluding related acquisition costs, Software EBIT grew at a double-digit rate and the margin would have improved versus the prior year.
Management Services
3Q 2010 Y-O-Y Change Change ex Currency
Revenue $245 million (5%) (4%)
EBIT $ 24 million 20%
As expected, revenue for the quarter declined as a result of account contractions and terminations in the U.S. over the last 12 months. The company has exited a number of postal facilities management contracts in the U.S. as the postal service realigned its delivery infrastructure. Outside the U.S., where the company principally provides print and customer communication services to enterprise accounts in Europe, revenue declined on lower volumes. Despite lower revenue, EBIT margins continued to improve versus the prior year, in both Europe and the U.S. The margin improvements resulted from the company's focus on more profitable contracts, ongoing productivity initiatives, and a continued transition to a more variable cost structure.
Mail Services
3Q 2010 Y-O-Y Change Change ex Currency
Revenue $145 million 8% 8%
EBIT $ 15 million (34%)
Mail Services continues to process increasing volumes of U.S. domestic presort mail and diversify its mix of mail as it grows its presence in Standard Class mail volumes. Overall volume of mail processed increased from both new and existing customers and was driven in part by the company's unique nationwide capability to help mailers benefit from the discounts available when properly utilizing the Intelligent Mail Barcode. Presort-related revenue for the quarter grew and the EBIT margin improved.
EBIT for the segment was impacted by increased costs associated with the International Mail Services (IMS) portion of the business. As the company ramps up its participation in the international e-commerce parcel market, higher shipping rates by some of the international carriers are affecting margins. The company is taking action to mitigate these cost increases to improve the margins of the business as volumes grow.
Marketing Services
3Q 2010 Y-O-Y Change Change ex Currency
Revenue $ 40 million 2% 2%
EBIT $ 9 million 15%
Revenue improved versus the prior year primarily because of increased vendor advertising for the Movers' Source kits, despite a decline in the number of household moves versus the prior year. EBIT margin improved year-over-year due to ongoing productivity initiatives.
2010 Guidance
This guidance discusses future results which are inherently subject to unforeseen risks and developments. As such, discussions about the business outlook should be read in the context of an uncertain future, as well as the risk factors identified in the safe harbor language at the end of this release.
The company is narrowing its earnings guidance range to reflect the results for the first three quarters of the year and its outlook for the remainder of the year. The global economy and business environment appears to be stabilizing in some areas but still remains uncertain in other areas, such as small business.
The company continues to expect revenue for the year, excluding the impact of foreign currency, will be in the range of flat to a three percent decline when compared with the prior year. The company now expects adjusted EPS from continuing operations for the year to be in the range of $2.15 to $2.22 and GAAP EPS in the range of $1.54 to $1.69. GAAP EPS includes tax charges of $.13 per diluted share related to out-of-the-money stock options; certain capital lease transactions outside the U.S. and the impact of health care legislation enacted in the beginning of the year. GAAP EPS also includes expected restructuring and asset impairment charges in the range of $.40 to $.48 related to the company's previously announced strategic transformation program.
The company expects to generate free cash flow for 2010 at or above the high end of its stated range of $700 million to $800 million.
The company's expected earnings results for 2010 are summarized below.
Full Year 2010
Adjusted EPS $2.15 to $2.22
Restructuring and Asset Impairments ($0.40 to $0.48)
Tax Charges ($0.13)
GAAP EPS from Continuing Operations $1.54 to $1.69
Mr. Martin concluded, "We are focused on implementing the actions that will help us navigate uncertain business and economic conditions in the near-term, while positioning us for long-term growth in the future. Our strategic transformation program is on track and providing the expected financial benefits as we saw this quarter when we had improving margins for four of our cost of revenue lines on our income statement and improving EBIT margins at five of our seven business segments. We remain focused on streamlining our business operations and creating more flexibility in our cost structure.
"Our investments for the future can be seen in actions during the quarter such as the continued phased launch of our innovative Connect+TM mailing system, and the completion of the acquisition of Portrait plc. We are committed to driving innovation and identifying more opportunities for growth in the future."
Management of Pitney Bowes will discuss the company's results in a broadcast over the Internet today at 5:00 p.m. EST. Instructions for listening to the earnings results via the Web are available on the Investor Relations page of the company's web site at www.pb.com/investorrelations.
Pitney Bowes is a $5.6 billion global leader whose products, services and solutions deliver value within the mailstream and beyond. For more information visit www.pitneybowes.com.
The company's financial results are reported in accordance with generally accepted accounting principles (GAAP). However, earnings per share, income from continuing operations, and free cash flow results are adjusted to exclude the impact of special items such as transformation initiatives, restructuring charges, tax adjustments, accounting adjustments and write downs of assets. Although these charges represent actual expenses to the company, these charges might mask the periodic income and financial and operating trends associated with our business. The use of free cash flow has limitations. GAAP cash flow has the advantage of including all cash available to the company after actual expenditures for all purposes. Free cash flow permits a shareholder insight into the amount of cash that management could have available for other discretionary uses. It adjusts for long-term commitments such as capital expenditures, as well as special items like cash used for restructuring charges, unusual tax payments and contributions to its pension funds. These items use cash that is not otherwise available to the company and are important expenditures. Management compensates for these limitations by using a combination of GAAP cash flow and free cash flow in doing its planning.
EBIT excludes interest payments and taxes, both cash expenses to the company, and as a result, has the effect of showing a greater amount of earnings than net income. The company uses EBIT for purposes of measuring the performance of its management team. The interest rates and tax rates applicable to the company generally are outside the control of management, and it can be useful to judge performance independent of those variables. Financial results on a constant currency basis exclude the impact of changes in foreign currency exchange rates since the prior period under comparison and are calculated using the average of the rates in effect during that period. Constant currency measures are intended to help investors better understand the underlying operational performance of the business excluding the impacts of shifts in currency exchange rates over the intervening period.
Pitney Bowes has provided a quantitative reconciliation to GAAP in supplemental schedules. This information may also be found at the company's web site www.pb.com/investorrelations in the Investor Relations section.
This document contains "forward-looking statements" about our expected or potential future business and financial performance. For us forward-looking statements include, but are not limited to, statements about possible transformation initiatives; restructuring charges; our future revenue and earnings guidance; and other statements about future events or conditions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to: the uncertain economic environment, fluctuations in customer demand; mail volumes; foreign currency exchange rates; the outcome of litigations; and changes in postal regulations, as more fully outlined in the company's 2009 Form 10-K Annual Report and other reports filed with the Securities and Exchange Commission. Pitney Bowes assumes no obligation to update any forward-looking statements contained in this document as a result of new information, events or developments.
Note: Consolidated statements of income; revenue and EBIT by business segment; and reconciliation of GAAP to non-GAAP measures for the three and nine months ended September 30, 2010 and 2009, and consolidated balance sheets at September 30, 2010 and June 30, 2010 are attached.
Pitney Bowes Inc.
Consolidated Statements of Income
(Unaudited)
(Dollars in
thousands,
except per
share data)
Three Months Ended September 30, Nine Months Ended September 30,
2010 2009 (2) 2010 2009 (2)
Revenue:
Equipment $ 248,228 $ 225,759 $ 718,399 $ 714,780
sales
Supplies 77,304 83,464 239,635 253,466
Software 95,850 87,295 265,130 254,401
Rentals 151,399 163,711 456,977 487,992
Financing 157,333 171,228 476,712 528,534
Support 175,844 177,607 531,176 531,200
services
Business 439,784 447,756 1,303,183 1,344,493
services
Total revenue 1,345,742 1,356,820 3,991,212 4,114,866
Costs and
expenses:
Cost of
equipment 115,721 106,326 325,120 331,144
sales
Cost of 23,843 23,785 73,381 68,495
supplies
Cost of 21,191 19,413 61,064 60,480
software
Cost of 36,277 40,508 107,658 114,372
rentals
Financing
interest 22,189 23,975 65,948 73,865
expense
Cost of
support 111,521 119,034 337,822 356,620
services
Cost of
business 335,588 335,406 1,003,712 1,033,933
services
Selling,
general and 435,292 435,931 1,304,941 1,317,410
administrative
Research and 38,454 45,052 117,487 138,623
development
Restructuring
charges and 33,805 12,845 103,039 12,845
asset
impairments
Other interest 29,310 27,244 86,172 84,548
expense
Interest (393 ) (668 ) (1,851 ) (3,153 )
income
Total costs 1,202,798 1,188,851 3,584,493 3,589,182
and expenses
Income from
continuing
operations 142,944 167,969 406,719 525,684
before income
taxes
Provision for 46,880 57,691 155,302 192,375
income taxes
Income from
continuing 96,064 110,278 251,417 333,309
operations
(Loss)/gain
from
discontinued (2,536 ) (2,429 ) (8,332 ) 5,296
operations,
net of income
tax
Net income
before
attribution of 93,528 107,849 243,085 338,605
noncontrolling
interests
Less:
Preferred
stock
dividends of
subsidiaries
attributable
to 4,593 4,622 13,730 13,714
noncontrolling
interests
Pitney Bowes
Inc. net $ 88,935 $ 103,227 $ 229,355 $ 324,891
income
Amounts
attributable
to Pitney
Bowes Inc.:
Income from
continuing $ 91,471 $ 105,656 $ 237,687 $ 319,595
operations
(Loss)/gain
from (2,536 ) (2,429 ) (8,332 ) 5,296
discontinued
operations
Pitney Bowes
Inc. net $ 88,935 $ 103,227 $ 229,355 $ 324,891
income
Basic earnings
per share of
common stock
attributable
to
Pitney Bowes
Inc. common
stockholders
(1):
Continuing $ 0.44 $ 0.51 $ 1.15 $ 1.55
operations
Discontinued (0.01 ) (0.01 ) (0.04 ) 0.03
operations
Net income $ 0.43 $ 0.50 $ 1.11 $ 1.57
Diluted
earnings per
share of
common stock
attributable
to
Pitney Bowes
Inc. common
stockholders
(1):
Continuing $ 0.44 $ 0.51 $ 1.15 $ 1.54
operations
Discontinued (0.01 ) (0.01 ) (0.04 ) 0.03
operations
Net income $ 0.43 $ 0.50 $ 1.11 $ 1.57
Average common
and potential
common
shares 206,282,026 207,643,504 207,291,482 207,198,120
outstanding
(1) The sum of the earnings per share amounts may not equal the totals above due to
rounding.
(2) Certain prior year amounts have been reclassified to conform to the current
year presentation.
Pitney Bowes Inc. Consolidated Balance Sheets (Unaudited) (Dollars in thousands, except per share data) Assets 09/30/10 06/30/10 Current assets: Cash and cash equivalents $ 386,046 $ 459,451 Short-term investments 21,351 21,839 Accounts receivable, less allowances: 09/10 $34,865 06/10 $34,565 725,667 710,019 Finance receivables, less allowances: 09/10 $48,366 06/10 $46,195 1,308,821 1,329,000 Inventories 187,875 182,974 Current income taxes 112,719 146,859 Other current assets and prepayments 102,838 99,856 Total current assets 2,845,317 2,949,998 Property, plant and 458,766 463,993 equipment, net Rental property and 315,489 322,110 equipment, net Long-term finance receivables, less allowances: 09/10 $20,511 06/10 $22,921 1,245,798 1,226,406 Investment in leveraged 241,125 232,820 leases Goodwill 2,312,304 2,211,544 Intangible assets, net 304,186 280,829 Non-current income taxes 108,546 107,963 Other assets 484,376 481,404 Total assets $ 8,315,907 $ 8,277,067 Liabilities, noncontrolling interests and stockholders' deficit Current liabilities: Accounts payable and accrued $ 1,694,745 $ 1,661,401 liabilities Current income taxes 130,114 139,593 Notes payable and current portion of 135,674 149,082 long-term obligations Advance billings 461,573 465,972 Total current liabilities 2,422,106 2,416,048 Deferred taxes on income 304,765 320,100 Tax uncertainties and other income tax 546,314 541,332 liabilities Long-term debt 4,242,845 4,233,469 Other non-current 573,447 590,429 liabilities Total liabilities 8,089,477 8,101,378 Noncontrolling interests (Preferred 296,370 296,370 stockholders' equity in subsidiaries) Stockholders' deficit: Cumulative preferred stock, $50 par value, 4% 4 4 convertible Cumulative preference stock, no par value, 804 824 $2.12 convertible Common stock, $1 par value 323,338 323,338 Additional paid-in 247,800 244,662 capital Retained earnings 4,293,549 4,280,409 Accumulated other comprehensive loss (451,880 ) (583,181 ) Treasury stock, at cost (4,483,555 ) (4,386,737 ) Total Pitney Bowes Inc. stockholders' (69,940 ) (120,681 ) deficit Total liabilities, noncontrolling interests $ 8,315,907 $ 8,277,067 and stockholders' deficit
Pitney Bowes Inc.
Revenue and EBIT
Business Segments
September 30, 2010
(Unaudited)
(Dollars in thousands) Three Months Ended September 30,
%
2010 2009 Change
Revenue
U.S. Mailing $ 461,787 $ 491,036 (6%)
International Mailing 227,844 224,681 1%
Small & Medium Business Solutions 689,631 715,717 (4%)
Production Mail 134,943 126,434 7%
Software 91,544 82,361 11%
Management Services 245,113 259,370 (5%)
Mail Services 144,988 134,042 8%
Marketing Services 39,523 38,896 2%
Enterprise Business Solutions 656,111 641,103 2%
Total revenue $ 1,345,742 $ 1,356,820 (1%)
EBIT (1)
U.S. Mailing $ 169,871 $ 178,066 (5%)
International Mailing 38,931 29,193 33%
Small & Medium Business Solutions 208,802 207,259 1%
Production Mail 15,243 11,494 33%
Software 7,996 8,241 (3%)
Management Services 23,508 19,517 20%
Mail Services 15,139 23,024 (34%)
Marketing Services 8,571 7,448 15%
Enterprise Business Solutions 70,457 69,724 1%
Total EBIT $ 279,259 $ 276,983 1%
Unallocated amounts:
Interest, net (2) (51,106) (50,551)
Corporate expense (51,404) (45,618)
Restructuring charges and asset (33,805) (12,845)
impairments
Income from continuing operations before $ 142,944 $ 167,969
income taxes
(1) Earnings before interest and taxes (EBIT) excludes general corporate
expenses and restructuring charges and asset impairments.
(2) Interest, net includes financing interest expense, other interest expense
and interest income.
Pitney Bowes Inc.
Revenue and EBIT
Business Segments
September 30, 2010
(Unaudited)
(Dollars in thousands) Nine Months Ended September 30,
%
2010 2009 Change
Revenue
U.S. Mailing $ 1,406,464 $ 1,517,377 (7%)
International Mailing 678,961 679,893 (0%)
Small & Medium Business Solutions 2,085,425 2,197,270 (5%)
Production Mail 380,114 366,000 4%
Software 251,877 240,559 5%
Management Services 748,538 789,635 (5%)
Mail Services (3) 416,245 413,891 1%
Marketing Services 109,013 107,511 1%
Enterprise Business Solutions 1,905,787 1,917,596 (1%)
Total revenue $ 3,991,212 $ 4,114,866 (3%)
EBIT (1)
U.S. Mailing $ 507,921 $ 561,232 (9%)
International Mailing 105,469 87,201 21%
Small & Medium Business Solutions 613,390 648,433 (5%)
Production Mail 35,111 26,974 30%
Software 18,136 16,064 13%
Management Services 65,781 49,294 33%
Mail Services (3) 44,813 63,322 (29%)
Marketing Services 20,430 17,323 18%
Enterprise Business Solutions 184,271 172,977 7%
Total EBIT $ 797,661 $ 821,410 (3%)
Unallocated amounts:
Interest, net (2) (150,269) (155,260)
Corporate expense (137,634) (127,621)
Restructuring charges and asset (103,039) (12,845)
impairments
Income from continuing operations before $ 406,719 $ 525,684
income taxes
(1) Earnings before interest and taxes (EBIT) excludes general corporate
expenses and restructuring charges and asset impairments.
(2) Interest, net includes financing interest expense, other interest expense
and interest income.
The Mail Services segment for the nine month period ended September 30, 2010
includes a one-time out of period adjustment
primarily to correct rates used to estimate earned but unbilled revenue for
the periods 2007 through first quarter 2010.
(3) The adjustment reduced 2010 year-to-date revenue and EBIT by $21 million and
$16 million, respectively. The impact of this
adjustment was not material on any individual quarter or year during these
periods and is not material to anticipated 2010
results.
Pitney Bowes Inc.
Reconciliation of Reported Consolidated Results to Adjusted Results
(Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended September 30, Nine Months Ended September 30,
2010 2009 2010 2009
GAAP income
from
continuing
operations
after income
taxes, as $ 91,471 $ 105,656 $ 237,687 $ 319,595
reported
Restructuring
charges and 21,630 8,300 67,027 8,300
asset
impairments
Tax 568 216 22,058 12,204
adjustments
Income from
continuing
operations
after income
taxes, as $ 113,669 $ 114,172 $ 326,772 $ 340,099
adjusted
GAAP diluted
earnings per
share from
continuing
operations, as $ 0.44 $ 0.51 $ 1.15 $ 1.54
reported
Restructuring
charges and 0.10 0.04 0.32 0.04
asset
impairments
Tax 0.00 0.00 0.11 0.06
adjustments
Diluted
earnings per
share from
continuing
operations, as $ 0.55 $ 0.55 $ 1.58 $ 1.64
adjusted
GAAP net cash
provided by
operating
activities,
as reported $ 243,085 $ 249,038 $ 666,887 $ 732,424
Capital (31,538 ) (36,319 ) (90,177 ) (126,509 )
expenditures
Restructuring
payments and 23,958 17,647 90,713 66,757
discontinued
operations
Reserve
account (14,062 ) (7,768 ) 5,405 (6,236 )
deposits
Free cash
flow, as $ 221,443 $ 222,598 $ 672,828 $ 666,436
adjusted
Note: The sum of the earnings per share amounts may not equal the totals above
due to rounding.
Source: Pitney Bowes Inc.
Released November 2, 2010