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Pitney Bowes Announces Third Quarter Results
STAMFORD, Conn.--(BUSINESS WIRE)--Oct. 29, 2007--Pitney Bowes Inc. (NYSE:PBI) today reported third quarter 2007 financial results.
Revenue increased 5 percent to $1.5 billion compared with the same period last year and income from continuing operations on a Generally Accepted Accounting Principles (GAAP) basis was $129 million. As discussed in previous quarters, income from continuing operations reflects the alignment of MapInfo's accounting treatment for software revenue recognition with the company's policies. In addition, income from continuing operations this quarter included two non-cash adjustments: a $4 million decrease in the company's deferred taxes primarily due to recent changes in German tax laws, and a $4 million pre-tax impairment of certain intangible assets in the company's legal solutions business. Excluding these items, adjusted income from continuing operations was $139 million for the quarter.
Adjusted diluted earnings per share from continuing operations was $.63 as compared with $.66 for the same period last year and below the company's guidance of $.70 to $.74. Earnings per diluted share from continuing operations on a GAAP basis was $.58 as compared with $.64 for the same period last year and below the company's guidance of $.68 to $.72.
The company generated $290 million in cash from operations during the quarter. Free cash flow was $239 million. The company used $72 million for dividends and $105 million to repurchase 2.3 million of its shares during the quarter. The remaining authorization for future share repurchases is $161 million. Year-to-date the company has generated $550 million in free cash flow and has returned $497 million to shareholders through dividends and share repurchase. The company is raising its guidance for annual free cash flow for 2007 to $625 to $675 million from $550 to $625 million. This reflects lower utilization of cash for finance receivables, working capital, and capital expenditures than originally planned.
Commenting on the quarter, President and CEO Murray D. Martin noted, "Business conditions during the third quarter were much more challenging than we originally anticipated. Our Software and Mail Services segments continued to have very strong results, but their performance was offset by weakness in our U.S. and International Mailing segments as well as in our Management Services segment."
Mr. Martin noted that the company's performance during the quarter was negatively affected by four factors. "First, weakness in certain sectors of the economy, such as financial services, is resulting in lower sales of equipment and software as well as lower print and supplies volumes.
Second, the postal rate case in the second quarter was a positive event for U.S. Mailing and helped generate significant incremental sales during that quarter. It is now apparent, however, that more of those sales were shifted from what would have normally occurred in future quarters than we had originally anticipated. Additionally, the benefit from meter migration this quarter was less than we expected.
Third, in International Mailing, delays in postal liberalization across Europe are creating a more difficult environment in the postal sector and are impacting customer purchases. The EBIT margin for International Mailing was adversely impacted by both the lower revenue growth and greater than anticipated expenses associated with our outsourcing contracts for European back office operations.
And finally, at Pitney Bowes Management Services, the benefit from the strong written business in prior quarters was offset by continuation of weak results in legal solutions and delays in government outsourcing contracts."
Business Segment Results
Mailstream Solutions includes worldwide revenue and related expenses from the sale, rental, and financing of mail finishing, mail creation, shipping, and production mail equipment; supplies; mailing and multi-vendor support services; payment solutions; and mailing and customer communication software.
In the third quarter, Mailstream Solutions revenue increased 3 percent to $1.1 billion and earnings before interest and taxes (EBIT) declined 4 percent to $286 million, when compared with the prior year.
Within Mailstream Solutions:
U.S. Mailing revenue declined 3 percent to $572 million and EBIT declined 3 percent to $224 million. The segment's results for the quarter were unfavorably impacted by lower equipment sales and rentals.
International Mailing revenue grew 1 percent to $254 million and EBIT decreased 24 percent to $33 million. International Mailing revenue growth benefited by about 6 percent from favorable currency translation, but was adversely affected by lower equipment sales and rentals in Europe. The company's continued investments for growth in sales and marketing channels in Europe, as well as expenses related to outsourcing the company's European back office operations, negatively impacted the segment's EBIT margin.
Worldwide revenue for Production Mail grew 1 percent to $148 million and EBIT increased 21 percent to $17 million. Revenue growth was driven by broad-based equipment placements in the Asia-Pacific region and favorable currency translation, which contributed about 2 percent to growth. However, lower equipment sales in the U.S. and Europe offset this growth. The segment's EBIT margin benefited from the favorable mix of equipment sales.
Software revenue increased 85 percent to $92 million and EBIT increased 50 percent to $11 million. Results for the quarter were driven by the acquisition of MapInfo, which increased revenue by about 68 percent and favorable currency translation, which contributed about 7 percent. There continues to be robust demand for the company's software solutions, particularly outside the U.S.
Mailstream Services includes worldwide revenue and related expenses from facilities management contracts, reprographics, document management, and other value-added services for targeted customer markets; mail services operations, which include presort mail services and cross-border mail services; and marketing services.
For the quarter, Mailstream Services reported revenue growth of 11 percent to $442 million, and EBIT increased 16 percent to $40 million, versus the prior year.
Within Mailstream Services:
Management Services revenue increased 6 percent to $278 million for the quarter while EBIT declined 10 percent to $17 million. The segment's revenue growth for the quarter was helped by acquisitions, which added about 2 percent to growth; favorable currency translation, which added about 2 percent to growth; and strong written business in prior quarters. Revenue, as well as EBIT margin, was adversely affected by lower pricing on contract renewals, continued weakness in legal solutions and delays in government contracts.
Mail Services revenue grew 27 percent to $116 million and EBIT grew 85 percent to $17 million. Revenue growth was driven by both presort and cross-border mail services, while EBIT benefited from the ongoing successful integration of new sites and increased operating efficiencies. Additionally, the segment was positively impacted by the postal rate case enacted earlier in the year, which increased the worksharing discounts available to large mailers.
Marketing Services revenue increased 12 percent to $48 million, while EBIT declined 13 percent to $5 million. The segment's results include the recent acquisition of Digital Cement, which added 15 percent to growth, and the continued expansion of marketing services programs. Lower revenue in the company's motor vehicle registration services again had an adverse effect on the segment's revenue and EBIT.
Outlook
The company anticipates fourth quarter revenue growth in the range of 6 to 9 percent and revenue growth of 6 to 8 percent for the full year.
Excluding the accounting alignment for MapInfo and the non-cash adjustments, the company expects adjusted earnings per share from continuing operations in the range of $.67 to $.71 for the fourth quarter and $2.67 to $2.71 for the full year. The company expects earnings per share from continuing operations on a GAAP basis in the range of $.66 to $.70 for the fourth quarter and $2.59 to $2.63 for the full year.
4Q07 4Q06 Full Year 2007 Full Year 2006
----------------------------------------------------------------------
Adjusted EPS $.67 to $.71 $.77 $2.67 to $2.71 $2.69
----------------------------------------------------------------------
MapInfo
Accounting ($.01) N/A ($0.05) N/A
----------------------------------------------------------------------
Restructuring N/A ($.05) N/A ($0.10)
----------------------------------------------------------------------
Tax Adjustments N/A N/A ($0.02) ($0.09)
----------------------------------------------------------------------
Other
(Expense)/Income N/A $.01 ($0.01) $0.01
----------------------------------------------------------------------
GAAP EPS $.66 to $.70 $.73 $2.59 to $2.63 $2.51
----------------------------------------------------------------------
The company also announced that it plans to hold a special investor call on Thursday, November 15 to discuss its action plans for the current market conditions.
Management of Pitney Bowes will discuss the company's results in a broadcast over the Internet today at 5:00 p.m. EDT. 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 engineers the flow of communication. The company is a $6 billion global leader of mailstream solutions headquartered in Stamford, Connecticut. For more information about the company, its products, services and solutions, visit www.pitneybowes.com.
Pitney Bowes has presented in this earnings release diluted earnings per share on an adjusted basis. Also, management has included a presentation of free cash flow on an adjusted basis, adjusted income from continuing operations, and earnings before interest and taxes (EBIT). Management believes this presentation provides a reasonable basis on which to present the adjusted financial information, and is provided to assist in investors' understanding of the company's results of operations. 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 restructuring charges, accounting adjustments and write downs of assets, which materially impact the comparability of the company's results of operations. Although restructuring 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 discretionary uses if it made different decisions about employing its cash. 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. Of course, 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.
The adjusted financial information and certain financial measures such as EBIT are intended to be more indicative of the ongoing operations and economic results of the company. EBIT excludes interest payments and taxes, both cash items, and as a result, has the effect of showing a greater amount of earnings than net income. The company uses EBIT, in addition to net income and income from continuing operations, for purposes of measuring the performance of its unit 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.
The adjusted financial information should be viewed as a supplement to, rather than a replacement for, the financial results reported in accordance with GAAP. Further, our definition of this adjusted financial information may differ from similarly titled measures used by other companies.
Pitney Bowes has provided in supplemental schedules attached for reference adjusted financial information and a quantitative reconciliation of the differences between the adjusted financial measures with the financial measures calculated and presented in accordance with GAAP, except with respect to our guidance because it would not be meaningful. Additional reconciliation of adjusted financial measures to financial measures calculated and presented in accordance with GAAP may be found at the company's web site www.pb.com/investorrelations in the Investor Relations section.
The information contained in this document is as of September 30, 2007. Quarterly results are preliminary and unaudited. This document contains "forward-looking statements" about our expected future business and financial performance. Pitney Bowes assumes no obligation to update any forward-looking statements contained in this document as a result of new information or future events or developments. Words such as "estimate," "project," "plan," "believe," "expect," "anticipate," "intend," and similar expressions may identify forward-looking statements. For us forward-looking statements include, but are not limited to, statements about possible restructuring charges and our future guidance, including our expected revenue in the fourth quarter and full year 2007, and our expected diluted earnings per share for the fourth quarter and for the full year 2007. Forward-looking statements 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: negative developments in economic conditions, including adverse impacts on customer demand, timely development and acceptance of new products or gaining product approval; successful entry into new markets; changes in interest rates; and changes in postal regulations, as more fully outlined in the company's 2006 Form 10-K Annual Report filed with the Securities and Exchange Commission. In addition, the forward-looking statements are subject to change based on the timing and specific terms of any announced acquisitions or dispositions.
Note: Consolidated statements of income for the three months ended September 30, 2007 and 2006, and consolidated balance sheets at September 30, 2007 and June 30, 2007 are attached.
Pitney Bowes Inc.
Consolidated Statements of Income
(Unaudited)
----------------------------------------------------------------------
(Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
2007 2006 2007 2006
------------- ------------ ------------- -------------
Revenue from:
Equipment
sales $ 307,897 $ 337,291 $ 961,868 $ 959,683
Supplies 95,497 84,728 292,197 250,412
Software 92,256 49,979 223,580 139,614
Rentals 183,452 196,219 552,433 590,257
Financing 201,241 185,547 586,658 538,139
Support
services 185,520 182,294 564,597 529,399
Business
services 442,414 397,273 1,284,215 1,176,682
------------- ------------ ------------- -------------
Total
revenue 1,508,277 1,433,331 4,465,548 4,184,186
------------- ------------ ------------- -------------
Costs and
expenses:
Cost of
equipment
sales 164,659 173,068 481,873 485,828
Cost of
supplies 27,061 26,071 77,909 66,475
Cost of
software 21,749 11,044 54,373 32,326
Cost of
rentals 42,630 42,231 128,312 128,070
Cost of
support
services 108,011 104,042 320,832 298,791
Cost of
business
services 345,024 307,378 1,008,647 917,285
Selling,
general and
administrative 479,772 443,426 1,393,289 1,293,619
Research and
development 47,691 41,893 138,364 124,409
Interest, net 60,386 51,962 179,654 160,600
Restructuring
charge - 6,771 - 17,409
Other expense,
net 3,920 - 3,920 -
------------- ------------ ------------- -------------
Total
costs and
expenses 1,300,903 1,207,886 3,787,173 3,524,812
------------- ------------ ------------- -------------
Income from
continuing
operations
before income
taxes 207,374 225,445 678,375 659,374
Provision for
income taxes 73,272 77,565 234,566 247,222
Minority
interest 4,862 3,653 14,404 9,814
------------- ------------ ------------- -------------
Income from
continuing
operations 129,240 144,227 429,405 402,338
Discontinued
operations (1,565) 4,393 (4,695) (456,264)
------------- ------------ ------------- -------------
Net
income $ 127,675 $ 148,620 $ 424,710 $ (53,926)
============= ============ ============= =============
Basic earnings
per share
Continuing
operations $ 0.59 $ 0.65 $ 1.96 $ 1.80
Discontinued
operations (0.01) 0.02 (0.02) (2.05)
------------- ------------ ------------- -------------
Net income $ 0.58 $ 0.67 $ 1.94 $ (0.24)
============= ============ ============= =============
Diluted
earnings per
share
Continuing
operations $ 0.58 $ 0.64 $ 1.93 $ 1.78
Discontinued
operations (0.01) 0.02 (0.02) (2.02)
------------- ------------ ------------- -------------
Net income $ 0.58 $ 0.66 $ 1.91 $ (0.24)
============= ============ ============= =============
Average common
and potential
common shares
outstanding 221,027,506 224,082,673 222,280,355 225,848,482
============= ============ ============= =============
Note: The sum of the earnings per share amounts may not equal the
totals above due to rounding.
Pitney Bowes Inc.
Consolidated Balance Sheets
(Unaudited)
----------------------------------------------------------------------
(Dollars in thousands, except per share data)
Assets 09/30/07 06/30/07
----------- ------------ ------------
Current assets:
Cash and cash equivalents $ 338,763 $ 251,967
Short-term investments, at cost which
approximates market 98,101 97,842
Accounts receivable, less allowances:
09/07 $46,532 06/07 $46,736 826,917 795,873
Finance receivables, less allowances:
09/07 $44,220 06/07 $40,923 1,492,149 1,453,391
Inventories 257,086 248,588
Other current assets and prepayments 257,670 246,650
------------ ------------
Total current assets 3,270,686 3,094,311
------------ ------------
Property, plant and equipment, net 664,592 626,576
Rental property and equipment, net 506,062 504,213
Long-term finance receivables, less
allowances:
09/07 $33,476 06/07 $33,179 1,574,072 1,557,005
Investment in leveraged leases 248,850 226,824
Goodwill 2,197,015 2,140,810
Intangible assets, net 479,767 492,795
Other assets 575,835 548,341
------------ ------------
Total assets $ 9,516,879 $ 9,190,875
============ ============
Liabilities and stockholders' equity
---------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 1,748,183 $ 1,613,887
Income taxes payable 130,364 107,202
Notes payable and current portion of
long-term obligations 1,102,053 1,180,815
Advance billings 541,988 556,004
------------ ------------
Total current liabilities 3,522,588 3,457,908
------------ ------------
Deferred taxes on income 523,976 507,671
Long-term debt 3,793,974 3,636,998
Other noncurrent liabilities 454,971 436,090
------------ ------------
Total liabilities 8,295,509 8,038,667
------------ ------------
Preferred stockholders' equity in a
subsidiary company 384,165 384,165
Stockholders' equity:
Cumulative preferred stock, $50 par
value, 4% convertible 7 7
Cumulative preference stock, no par
value, $2.12 convertible 1,026 1,043
Common stock, $1 par value 323,338 323,338
Capital in excess of par value 250,079 244,700
Retained earnings 4,263,276 4,207,572
Accumulated other comprehensive income 43,416 (53,770)
Treasury stock, at cost (4,043,937) (3,954,847)
------------ ------------
Total stockholders' equity 837,205 768,043
------------ ------------
Total liabilities and stockholders'
equity $ 9,516,879 $ 9,190,875
============ ============
Pitney Bowes Inc.
Revenue and EBIT
Business Segments
September 30, 2007
(Unaudited)
----------------------------------------------------------------------
(Dollars in thousands)
%
2007 2006 Change
----------- ----------- ------
Third Quarter
----------------------
Revenue
---------------------
U.S. Mailing $ 571,568 $ 587,226 (3%)
International Mailing 254,001 252,641 1%
Production Mail 148,038 146,212 1%
Software 92,256 49,979 85%
----------- ----------- ------
Mailstream Solutions 1,065,863 1,036,058 3%
Management Services 278,167 263,229 6%
Mail Services 115,999 91,067 27%
Marketing Services 48,248 42,977 12%
----------- ----------- ------
Mailstream Services 442,414 397,273 11%
----------- ----------- ------
Total Revenue $1,508,277 $1,433,331 5%
----------- ----------- ------
EBIT (1)
---------------------
U.S. Mailing $ 224,317 $ 232,337 (3%)
International Mailing 33,424 43,843 (24%)
Production Mail 16,560 13,668 21%
Software 11,330 7,566 50%
----------- ----------- ------
Mailstream Solutions 285,631 297,414 (4%)
Management Services 17,140 18,976 (10%)
Mail Services 17,446 9,444 85%
Marketing Services 5,310 6,087 (13%)
----------- ----------- ------
Mailstream Services 39,896 34,507 16%
----------- ----------- ------
Total EBIT $ 325,527 $ 331,921 (2%)
----------- ----------- ------
Unallocated amounts:
Interest, net (60,386) (51,962)
Corporate expense (47,993) (47,743)
Restructuring charges - (6,771)
Other expense, net (3,920) -
MapInfo purchase accounting (5,854) -
----------- -----------
Income before income taxes $ 207,374 $ 225,445
=========== ===========
(1) Earnings before interest and taxes (EBIT) excludes general
corporate expenses, other expense net, restructuring charges and the
MapInfo purchase accounting alignment.
Pitney Bowes Inc.
Revenue and EBIT
Business Segments
September 30, 2007
(Unaudited)
----------------------------------------------------------------------
(Dollars in thousands)
%
2007 2006 Change
----------- ----------- ------
Year To Date
------------------
Revenue
-----------------
U.S. Mailing $1,780,890 $1,729,983 3%
International Mailing 764,241 741,639 3%
Production Mail 412,622 396,268 4%
Software 223,580 139,614 60%
----------- ----------- ------
Mailstream Solutions 3,181,333 3,007,504 6%
Management Services 825,878 798,280 3%
Mail Services 334,782 275,914 21%
Marketing Services 123,555 102,488 21%
----------- ----------- ------
Mailstream Services 1,284,215 1,176,682 9%
----------- ----------- ------
Total Revenue $4,465,548 $4,184,186 7%
----------- ----------- ------
EBIT (1)
-----------------
U.S. Mailing $ 728,576 $ 697,816 4%
International Mailing 116,311 131,565 (12%)
Production Mail 42,500 32,512 31%
Software 30,749 17,183 79%
----------- ----------- ------
Mailstream Solutions 918,136 879,076 4%
Management Services 53,929 61,367 (12%)
Mail Services 44,104 30,100 47%
Marketing Services 6,449 11,803 (45%)
----------- ----------- ------
Mailstream Services 104,482 103,270 1%
----------- ----------- ------
Total EBIT $1,022,618 $ 982,346 4%
----------- ----------- ------
Unallocated amounts:
Interest, net (179,654) (160,600)
Corporate expense (146,915) (144,963)
Restructuring charges - (17,409)
Other expense, net (3,920) -
MapInfo purchase accounting (13,754) -
----------- -----------
Income before income taxes $ 678,375 $ 659,374
=========== ===========
(1) Earnings before interest and taxes (EBIT) excludes general
corporate expenses, other expense net, restructuring charges and the
MapInfo purchase accounting alignment.
Pitney Bowes Inc.
Reconciliation of Reported Consolidated Results to Adjusted Results
(Unaudited)
(Dollars in thousands, except per share amounts)
Three months ended Nine months ended
September 30, September 30,
------------------- ---------------------
2007 2006 2007 2006
--------- --------- ---------- ----------
GAAP income from continuing
operations after income
taxes, as reported $129,240 $144,227 $ 429,405 $ 402,338
Restructuring charge - 4,332 - 11,142
Tax adjustment 3,602 - 3,602 20,000
MapInfo Purchase
accounting 3,864 - 9,079 -
Other expense, net 2,241 - 2,241 -
--------- --------- ---------- ----------
Income from continuing
operations after income
taxes, as adjusted $138,947 $148,559 $ 444,327 $ 433,480
========= ========= ========== ==========
GAAP diluted earnings per
share from continuing
operations, as reported $ 0.58 $ 0.64 $ 1.93 $ 1.78
Restructuring charge - 0.02 - 0.05
Tax adjustment 0.02 - 0.02 0.09
MapInfo Purchase
accounting 0.02 - 0.04 -
Other expense, net 0.01 - 0.01 -
--------- --------- ---------- ----------
Diluted earnings per share
from continuing operations,
as adjusted $ 0.63 $ 0.66 $ 2.00 $ 1.92
========= ========= ========== ==========
GAAP net cash provided by
operating activities, as
reported $289,789 $(60,554) $ 696,765 $ 335,790
Capital expenditures (73,592) (81,430) (202,013) (243,858)
Reserve account
deposits 17,002 10,390 26,506 10,390
Restructuring payments
and discontinued
operations 6,142 33,045 28,532 56,437
IRS/Capital Services
tax payment - 238,500 - 238,500
--------- --------- ---------- ----------
Free cash flow, as adjusted $239,341 $139,951 $ 549,790 $ 397,259
========= ========= ========== ==========
Note: The sum of the earnings per share amounts may not equal the
totals above due to rounding.
CONTACT: Pitney Bowes Inc.
Editorial -
Sheryl Y. Battles, VP, Corp. Communications
203-351-6808
or
Financial -
Charles F. McBride, VP, Investor Relations
203-351-6349
www.pitneybowes.com
SOURCE: Pitney Bowes Inc.