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Q3 1998 Earnings
STAMFORD, Conn.--(BUSINESS WIRE)--Oct. 20, 1998-- Pitney Bowes Inc. (NYSE:PBI) today announced another record quarter as third-quarter diluted earnings per share rose 15.7 percent to 51 cents. Diluted earnings per share from continuing operations was 50 cents, a 17.4 percent increase over third quarter 1997. Consolidated net income grew 10.8 percent to $141.6 million, as compared to $127.8 million in the third quarter last year. Income from continuing operations increased 12.1 percent to $139.2 million from third quarter 1997.
Third-quarter revenues rose eight percent to $1.05 billion, and 10 percent, excluding the Commercial and Industrial Financing segment. Colonial Pacific Leasing Corporation's (CPLC) results have been excluded from continuing operations because, as announced earlier this month, Pitney Bowes has signed a definitive agreement to sell its broker-oriented external financing business to General Electric Capital Corporation, a subsidiary of General Electric Company (NYSE:GE). This sale is part of Pitney Bowes' ongoing strategy to maximize shareholder value by refocusing its financial services operations on supporting core products and services and fee-based financing. Proceeds from the sale will be used to reinvest in core businesses around the world, pay down consolidated debt and repurchase shares of the company's stock.
In discussing the company's performance during the quarter, chairman and chief executive officer Michael J. Critelli noted, "Because of the breadth of our technologically advanced product and service offerings, Pitney Bowes can deliver effective solutions for the end-to-end messaging needs of any size business - from small entrepreneurs to multinational conglomerates. Our comprehensive portfolio of solutions, the ongoing strength of our core business, our unwavering focus on profitable growth and our steady recurring revenue streams, have all allowed us to post solid results despite economic uncertainties around the world. Revenue growth was driven by strong sales which, excluding foreign exchange impacts, increased over nine percent, and rentals and financing revenue, which was up almost eight percent. Rental and financing revenue growth was accelerated by approximately $5 million from sales of selected investments in our mortgage servicing business."
Mr. Critelli added, "We have improved our continuing operations income margin to 13.2 percent this quarter, as compared to 12.7 percent in the third quarter of 1997. Keep in mind that we improved this margin while we continued to invest for future growth in research and development and in key initiatives to drive operational effectiveness. Year-over-year sales revenue margin increased for the ninth time in the last 10 quarters, which is notable given the excellent growth in the Business Services segment, with its higher cost-of-sales ratio. Similar to this year's second quarter, margin improvements were partially offset by a lower rentals-and-financing gross margin. We expected this lower margin comparison as a result of the ongoing success of our financial services strategy to shift the mix from asset- to fee-based revenue, resulting in relatively higher costs of financing but lower interest costs."
In the Business Equipment Segment, which includes mailing and office systems operations, revenue grew seven percent and operating profit increased 14 percent during the quarter. Mailing Systems' seven-percent revenue increase, excluding foreign currency impacts, was driven by strong customer demand for our advanced mailing equipment and systems, particularly at the high end, and the ongoing migration to advanced electronic and digital metering technology. The segment's recurring revenue streams were strengthened with growth in meter rental revenue, increased supply sales, and the growing adoption of the Purchase Power financing solution, which provides customers with a convenient line of credit to obtain postage and supplies without tying up valuable cash flow.
Revenue from Office Systems rose nine percent with solid growth in both the facsimile and copier product lines. During the quarter, the copier line benefited from placements of the "Smart Image Plus" line of copiers, as well as the addition of the high volume, 62-copy-per-minute DL620 copier to the digital product line. We are acknowledged as the leading supplier of the fastest facsimile systems on the market - 33.6 kbps - and ongoing customer demand for these money-saving systems and related supplies was another key contributor to the quarter's strong performance.
In the Business Services Segment, revenue grew 28 percent and operating profit grew 54 percent. The segment's growth was driven by increases in the customer base of both the mortgage services and management services businesses. Operating profit also continued to benefit from leveraging operating efficiencies. Operating profit improvements were partially offset by a revaluation of the company's assets due to a projected rise in future mortgage prepayments attributable to recent declines in interest rates.
In line with management's previously announced strategy to concentrate on fee-based rather than asset-based income, the Commercial and Industrial Financing Segment experienced a 23 percent decline in revenue. Operating profit for the quarter declined eight percent when compared to third quarter 1997 after excluding a one-time charge associated with the asset sales to GATX Capital Corporation during the quarter. On a reported basis, operating profit increased 54% compared to the third quarter of last year. As noted above, the results of CPLC have been excluded from continuing operations.
Mr. Critelli concluded, "Our goal is to generate and deliver enhanced shareholder value. We are committed to an ongoing evaluation of our portfolio of businesses to maximize each unit's contribution to total shareholder value."
As previously announced, the company is in the process of an 11 million share repurchase program, with shares to be acquired with cash from sales of external financing assets and cash from operations. Approximately 8.2 million shares were repurchased during the first nine months of 1998 under this program, including 1.6 million shares during the third quarter of 1998.
Third quarter 1998 revenue included $488.6 million from sales, up nine percent from $449.9 million in the third quarter of 1997; $435.6 million from rentals and financing, up eight percent from $404.0 million; and $128.3 million from support services, up six percent from $120.7 million.
Third quarter 1998 net income was $141.6 million, or 51 cents per diluted share, compared to $127.8 million, or 44 cents per diluted share, in 1997. Third quarter 1998 net income included $2.4 million, or one cent per share, from CPLC, which the company is in the process of selling, compared to $3.6 million, or one cent per share, in 1997.
For the nine-month period ended Sept. 30, 1998, revenue was $3.073 billion, up seven percent from $2.870 billion in 1997; and consolidated net income in 1998 was $413.3 million, or $1.47 per diluted share, compared to $378.8 million, or $1.29 per diluted share, in 1997. The year-to-date net income included $7.8 million, or three cents per share, for CPLC as discontinued operations compared to $9.9 million, or three cents per share, in 1997.
Pitney Bowes is a global provider of informed mail and messaging management.
The forward-looking statements contained in this news release involve risks and uncertainties, and are subject to change based on various important factors including timely development and acceptance of new products, 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 1997 Form 10-K Annual Report filed with the Securities and Exchange Commission.
Note: Consolidated statements of income for the three and nine months ended Sept. 30, 1998 and 1997 and consolidated balance sheets at Sept. 30, 1998, June 30, 1998 and Sept. 30, 1997, follow.
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,
1998 1997 1998 1997
Revenue from:
Sales $ 488,575 $ 449,904 $ 1,431,310 $ 1,317,483
Rentals and financing 435,557 404,049 1,262,371 1,192,407
Support services 128,271 120,671 379,715 359,870
Total revenue 1,052,403 974,624 3,073,396 2,869,760
Costs and expenses:
Cost of sales 282,503 265,563 847,486 788,861
Cost of rentals and
financing 133,237 119,528 377,154 334,882
Selling, service and
administrative 362,921 339,717 1,046,819 1,001,508
Research and development 24,699 21,578 73,395 64,061
Interest, net 36,704 38,935 110,076 117,520
Total costs and
expenses 840,064 785,321 2,454,930 2,306,832
Income from continuing
operations before income
taxes 212,339 189,303 618,466 562,928
Provision for income taxes 73,120 65,121 212,929 193,979
Income from continuing
operations 139,219 124,182 405,537 368,949
Discontinued operations 2,367 3,623 7,753 9,872
Net income $141,586 $127,805 $413,290 $378,821
Basic earnings per share
Continuing operations $ 0.51 $ 0.43 $ 1.47 $ 1.27
Discontinued operations 0.01 0.01 0.03 0.03
$ 0.52 $ 0.44 $ 1.50 $ 1.30
Diluted earnings per share
Continuing operations $ 0.50 $ 0.43 $ 1.44 $ 1.26
Discontinued operations 0.01 0.01 0.03 0.03
$ 0.51 $ 0.44 $ 1.47 $ 1.29
Average common and potential
common shares
outstanding 278,712,757 291,188,859 280,667,340 294,522,342
Pitney Bowes Inc.
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands except
per share data)
Assets 9/30/98 6/30/98 9/30/97
Current assets:
Cash and cash equivalents $144,974 $115,322 $125,140
Short-term investments,
at cost which approximates
market 1,930 1,943 1,955
Accounts receivable,
less allowances:
9/98, $22,513; 6/98, $21,883;
9/97, $19,532 346,485 367,409 328,194
Finance receivables,
less allowances:
9/98, $61,274; 6/98, $61,867;
9/97, $45,205 1,757,452 1,681,062 1,569,114
Inventories 235,568 240,045 251,287
Other current assets and
prepayments 174,663 165,834 143,327
Total current assets 2,661,072 2,571,615 2,419,017
Property, plant and equipment, net 486,842 491,552 484,995
Rental equipment and related
inventories, net 804,190 823,530 822,121
Property leased under capital
leases, net 3,909 4,080 4,569
Long-term finance receivables, less
allowances:
9/98, $73,840; 6/98, $77,755;
9/97, $72,576 2,397,466 2,327,915 3,201,266
Investment in leveraged leases 817,144 776,930 678,889
Goodwill, net of amortization:
9/98, $45,902; 6/98, $44,208;
9/97, $39,268 213,778 208,946 200,681
Other assets 869,944 868,400 430,756
Total assets $8,254,345 $8,072,968 $8,242,294
Liabilities and stockholders' equity
------------------------------------
Current liabilities:
Accounts payable and accrued
liabilities $ 864,511 $ 845,562 $ 866,995
Income taxes payable 165,414 139,867 128,447
Notes payable and current portion
of long-term obligations 1,844,077 1,761,162 2,176,026
Advance billings 362,801 376,871 342,281
Total current liabilities 3,236,803 3,123,462 3,513,749
Deferred taxes on income 929,199 925,837 890,542
Long-term debt 1,710,533 1,627,127 1,171,301
Other noncurrent liabilities 366,799 368,039 377,907
Total liabilities 6,243,334 6,044,465 5,953,499
Preferred stockholders' equity in
a subsidiary company 300,000 300,000 300,000
Stockholders' equity:
Cumulative preferred stock,
$50 par value, 4% convertible 34 34 41
Cumulative preference stock, no
par value, $2.12 convertible 2,076 2,112 2,250
Common stock, $1 par value 323,338 323,338 323,338
Capital in excess of par value 18,198 21,864 26,217
Retained earnings 2,971,883 2,892,080 2,654,122
Accumulated other comprehensive
income (90,548) (74,630) (65,890)
Treasury stock, at cost (1,513,970) (1,436,295) (951,283)
Total stockholders' equity 1,711,011 1,728,503 1,988,795
Total liabilities and
stockholders' equity $8,254,345 $8,072,968 $8,242,294
Pitney Bowes Inc.
Revenue and Operating Profit
By Business Segment
September 30, 1998
(Unaudited)
(Dollars in thousands)
%
1998 1997 Change
Third Quarter
Revenue
Business Equipment $ 830,450 $ 779,672 7%
Business Services 181,635 142,270 28%
1,012,085 921,942 10%
Commercial and
Industrial
Financing 40,318 52,682 (23%)
Total Revenue $ 1,052,403 $ 974,624 8%
Operating Profit (1)
Business Equipment $ 213,162 $ 186,436 14%
Business Services 20,657 13,413 54%
233,819 199,849 17%
Commercial and
Industrial
Financing 11,482 7,455 54%
Total Operating
Profit $ 245,301 $ 207,304 18%
(1) Operating profit excludes general corporate expenses, income
taxes, and net interest other than that related to finance operations.
Pitney Bowes Inc.
Revenue and Operating Profit
By Business Segment
September 30, 1998
(Unaudited)
(Dollars in thousands)
%
1998 1997 Change
Year to Date
Revenue
Business Equipment $2,446,692 $2,304,156 6%
Business Services 507,396 408,721 24%
2,954,088 2,712,877 9%
Commercial and
Industrial
Financing 119,308 156,883 (24%)
Total Revenue $3,073,396 $2,869,760 7%
Operating Profit (1)
Business Equipment $615,945 $542,464 14%
Business Services 53,497 35,692 50%
669,442 578,156 16%
Commercial and
Industrial
Financing 32,029 32,569 (2%)
Total Operating Profit $701,471 $610,725 15%
(1) Operating profit excludes general corporate expenses, income
taxes, and net interest other than that related to finance
operations.