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Pitney Bowes Announces Second Quarter Results
STAMFORD, Conn., July 24 /PRNewswire-FirstCall/ -- Pitney Bowes Inc. (NYSE: PBI) today reported second quarter 2006 financial results.
For the second quarter 2006, revenue increased five percent to $1.39 billion and income from continuing operations was $121 million or $.54 per diluted share versus $.52 per diluted share for the prior year. In addition, the company recorded a $2.13 loss per diluted share in discontinued operations.
During the quarter, the company recorded an after-tax charge from restructuring activity of $3 million or $.01 per diluted share as part of the restructuring program that it intends to substantially complete this year. It also recorded an additional tax provision of $61 million associated with the anticipated tax settlement agreement with the Internal Revenue Service, of which $20 million is included in continuing operations and $41 million is included in discontinued operations. The company also recorded an additional tax provision of $16 million in discontinued operations related to a recent tax law change.
Excluding the impact of both the restructuring charge and the additional provision related to the tax settlement, adjusted diluted earnings per share from continuing operations was $.64 this quarter versus $.59 in the prior year.
On July 17, 2006, the company announced that it had completed the sale of its Capital Services external financing business to an affiliate of Cerberus Capital Management, L.P. The company recorded a $477 million loss in discontinued operations in the second quarter as a result of the sale of the Capital Services business, the sale of the Imagistics lease portfolio, the anticipated IRS settlement, and the additional tax provision related to the recent tax law change. Discontinued operations included net income of $.05 per diluted share from the Capital Services business, excluding the impact of the recent tax law change.
Mr. Critelli noted, "The sale of Capital Services is an important milestone for our company. We believe that it will enable investors to see more clearly the underlying strength and performance of our business. We are also further enhancing the transparency of our operations by providing more financial information about our business results."
Including discontinued operations, the company generated net cash from operating activities of $143 million during the quarter. Adjusted free cash flow was $70 million. Adjusted free cash flow reflects cash from operations after subtracting capital expenditures and excluding the impact of discontinued operations and the company's restructuring program. Year-to-date, the company has generated $430 million in net cash from operating activities and $261 million of adjusted free cash flow.
The company used $141 million to repurchase 3.3 million of its shares during the quarter and has $249 million of remaining authorization for future share repurchases.
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; support services; payment solutions; and mailing and customer communication software.
In the second quarter, Mailstream Solutions revenue increased five percent to $1.0 billion and earnings before interest and taxes (EBIT) increased five percent to $297 million, when compared with the prior year.
Within Mailstream Solutions:
U.S. Mailing operations had second quarter revenue growth of one percent to $568 million and EBIT growth of four percent to $234 million. There was strong growth in supplies and payment solutions as the meter base continues to transition to new digital technology. However, revenue continued to be adversely affected by the ongoing changing mix to more fully featured smaller systems. In addition, the company experienced a delay in some anticipated orders, and a higher than anticipated proportion of orders where revenue is recognized over time.
International Mailing revenue grew nine percent to $249 million while EBIT decreased by five percent to $42 million. International Mailing revenue benefited from growth in Europe. Transitional expenses related to the consolidation and outsourcing of European and Canadian administrative functions adversely affected International Mailing EBIT.
Worldwide revenue for Production Mail grew six percent to $133 million and EBIT increased 53 percent to $15 million. In the U.S. revenue growth was favorably affected by strong placements of inserting systems and by placements of the company's advanced, high-speed Infinity metering system. The strong U.S. results more than offset the weaker revenue performance outside of the U.S.
Software revenue grew 25 percent to $48 million and EBIT grew 41 percent to $5 million. Revenue growth benefited from strong demand for the company's software products and the acquisition of a print management company in the first quarter.
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 international outbound mail services; and marketing services.
For the quarter, Mailstream Services reported revenue growth of six percent to $391 million and EBIT growth of 48 percent to $34 million, versus the prior year.
Within Mailstream Services:
Management Services revenue declined three percent for the quarter to $268 million and EBIT increased 21 percent to $22 million, consistent with the company's strategy to exit unprofitable accounts and facilities while focusing on higher value service offerings and administrative cost reductions.
Mail Services revenue grew 11 percent to $91 million and EBIT grew 192 percent to $9 million. Revenue reflects growth in presort and international mail services, while EBIT benefited from the ongoing successful integration of acquired sites and increased operating efficiencies.
Marketing Services revenue increased 167 percent to $33 million and EBIT grew 60 percent to $4 million. EBIT margin was adversely affected by continued investments for growth initiatives.
Outlook
The company anticipates third quarter revenue growth in the range of seven to nine percent for the third quarter and increased its revenue guidance to six to eight percent for the full year, to reflect recent acquisitions.
The company expects adjusted earnings per share in third quarter 2006 in the range of $0.65 to $0.67 and $2.66 to $2.72 for the full year. Earnings per share on a Generally Accepted Accounting Principles (GAAP) basis is expected to be $0.62 to $0.65 for the third quarter and $2.47 to $2.56 for the full year. The earnings expectations for third quarter and the full year are further summarized as follows:
3Q06 3Q05 Full Year 2006 Full Year 2005
Adjusted EPS $0.65 to $0.67 $0.61 $2.66 to $2.72 $2.46
Restructuring ($0.02 to $0.03) ($0.03) ($0.07 to $0.10) ($0.15)
Foundation
Contributions N/A N/A N/A ($0.03)
Tax Reserve
Increase N/A N/A ($0.09) ($0.24)
GAAP EPS $0.62 to $0.65 $0.58 $2.47 to $2.56 $2.04
Management of Pitney Bowes will discuss the company's results in a conference call today at 5:00 p.m. EDT. Instructions for listening to the conference call over the WEB are available on the Investor Relations page of the company's web site at http://www.pb.com/investorrelations.
Pitney Bowes engineers the flow of communication. The company is a $5.5 billion global leader of mailstream solutions headquartered in Stamford, Connecticut. For more information about the company, its products, services and solutions, visit http://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 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, the earnings per share and free cash flow results are adjusted to exclude the impact of special items such as restructuring charges and write downs of assets, which materially impact the comparability of the company's results of operations. Restructuring charges often reflect retooling of the business in an episodic way. Although they represent actual expenses to the company, these episodic charges might mask the periodic income associated with our business had there not been a retooling. 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 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, 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 http://www.pb.com/investorrelations in the Investor Relations section.
The information contained in this document is as of July 24, 2006. 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 third quarter and full year 2006, and our expected diluted earnings per share for the third quarter and for the full year 2006. 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 2005 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 June 30, 2006 and 2005, and consolidated balance sheets at June 30, 2006, March 31, 2006, and June 30, 2005, are attached.
Editorial -- Sheryl Y. Battles
VP, Corp. Communications
203/351-6808
Website -- http://www.pitneybowes.com
Pitney Bowes Inc.
Consolidated Statements of Income
(Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2006 2005(1) 2006 2005(1)
Revenue from:
Equipment sales $319,635 $297,815 $622,392 $588,577
Supplies 82,873 72,850 165,684 149,632
Software 47,640 38,138 89,635 74,055
Rentals 197,226 205,494 394,038 407,135
Financing 174,447 164,699 352,592 325,524
Support services 176,339 174,013 347,105 345,960
Business services 391,050 369,597 779,409 719,653
Total revenue 1,389,210 1,322,606 2,750,855 2,610,536
Costs and expenses:
Cost of equipment
sales 159,780 151,276 312,760 297,353
Cost of supplies 19,796 17,678 40,404 36,267
Cost of software 11,103 7,958 21,282 16,527
Cost of rentals 42,300 43,969 85,839 86,286
Cost of support
services 98,453 97,972 194,749 193,324
Cost of business
services 303,583 299,549 609,907 588,659
Selling, general and
administrative 432,531 406,744 850,193 818,881
Research and
development 40,980 40,508 82,516 82,286
Interest, net 55,070 45,155 108,638 87,065
Restructuring charge 5,041 26,402 10,638 10,562
Total costs
and expenses 1,168,637 1,137,211 2,316,926 2,217,210
Income from continuing
operations before
income taxes 220,573 185,395 433,929 393,326
Provision for income
taxes 96,077 61,634 169,657 132,220
Minority interest 3,244 2,521 6,161 4,504
Income from continuing
operations 121,252 121,240 258,111 256,602
Discontinued
operations (477,326) 13,718 (460,657) 23,631
Net income $(356,074) $134,958 $(202,546) $280,233
Basic earnings per share
Continuing
operations 0.55 $0.53 $1.15 $1.12
Discontinued
operations (2.15) 0.06 (2.06) 0.10
Net income $(1.61) $0.59 $(0.91) $1.22
Diluted earnings per share
Continuing
operations $0.54 $0.52 $1.14 $1.10
Discontinued
operations (2.13) 0.06 (2.03) 0.10
Net income $(1.59) $0.58 $(0.89) $1.20
Average common and
potential common
shares outstanding 224,414,042 232,850,056 226,580,915 233,293,839
(1) Prior year amounts have been reclassified to conform with the current
year presentation.
Note: The sum of the earnings per share amounts may not equal the totals above due to rounding.
Average common and
potential common shares
outstanding (Basic) 221,634,819 229,438,712 223,715,544 229,779,276
Pitney Bowes Inc.
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands, except per share data)
Assets 06/30/06 3/31/06(1) 06/30/05(1)
Current assets:
Cash and cash equivalents $ 196,315 $195,341 $276,884
Short-term investments,
at cost which approximates
market 81,504 70,795 72,836
Accounts receivable, less
allowances:
06/06 $46,856 03/06 $46,646
06/05 $50,977 660,092 660,270 617,066
Finance receivables, less
allowances:
06/06 $46,435 03/06 $56,488
06/05 $66,673 1,285,907 1,425,953 1,331,618
Inventories 243,225 225,870 237,146
Other current assets and
prepayments 225,588 215,225 210,791
Assets of discontinued
operations 1,218,435 - -
Total current assets 3,911,066 2,793,454 2,746,341
Property, plant and equipment,
net 621,627 615,544 633,991
Rental property and equipment,
net 480,942 1,006,466 1,024,349
Property leased under capital
leases, net 2,396 2,673 2,572
Long-term finance receivables,
less allowances:
06/06 $37,540 03/06 $70,133
06/05 $85,731 1,511,722 1,831,442 1,774,808
Investment in leveraged leases 255,724 1,413,717 1,447,588
Goodwill 1,753,812 1,646,883 1,609,849
Intangible assets, net 375,826 349,564 347,414
Other assets 799,506 928,719 942,700
Total assets $9,712,621 $10,588,462 $10,529,612
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and
accrued liabilities $1,478,114 $1,453,640 $1,491,710
Income taxes payable 220,503 85,806 116,290
Notes payable and current
portion of long-term
obligations 707,050 894,232 1,490,067
Advance billings 491,856 496,535 483,344
Liabilities of discontinued
operations 1,448,121 - -
Total current liabilities 4,345,644 2,930,213 3,581,411
Deferred taxes on income 527,538 1,907,769 1,689,340
Long-term debt 3,363,665 3,778,208 3,223,272
Other noncurrent liabilities 270,901 313,673 329,866
Total liabilities 8,507,748 8,929,863 8,823,889
Preferred stockholders'
equity in a subsidiary
company 310,000 310,000 310,000
Stockholders' equity:
Cumulative preferred stock,
$50 par value, 4% convertible 17 17 17
Cumulative preference stock,
no par value, $2.12 convertible 1,105 1,140 1,173
Common stock, $1 par value 323,338 323,338 323,338
Capital in excess of par value 229,745 224,624 211,727
Retained earnings 3,978,614 4,405,405 4,230,239
Accumulated other comprehensive
income 181,521 97,125 123,156
Treasury stock, at cost (3,819,467) (3,703,050) (3,493,927)
Total stockholders' equity 894,873 1,348,599 1,395,723
Total liabilities and
stockholders' equity $9,712,621 $10,588,462 $10,529,612
(1) Prior period amounts have been reclassified to conform with the
current year presentation.
Pitney Bowes Inc.
Revenue and EBIT
Business Segments
June 30, 2006
(Unaudited)
(Dollars in thousands)
%
2006 2005(2) Change
Second Quarter
Revenue
U.S. Mailing $567,766 $561,232 1%
International Mailing 249,490 228,110 9%
Production Mail 133,264 125,529 6%
Software 47,640 38,138 25%
Mailstream Solutions 998,160 953,009 5%
Management Services 267,548 275,568 (3%)
Mail Services 90,749 81,764 11%
Marketing Services 32,753 12,265 167%
Mailstream Services 391,050 369,597 6%
Total Revenue $1,389,210 $1,322,606 5%
EBIT (1)
U.S. Mailing $234,104 $224,926 4%
International Mailing 42,379 44,707 (5%)
Production Mail 15,281 10,003 53%
Software 5,207 3,695 41%
Mailstream Solutions 296,971 283,331 5%
Management Services 21,860 18,004 21%
Mail Services 8,970 3,071 192%
Marketing Services 3,616 2,266 60%
Mailstream Services 34,446 23,341 48%
Total EBIT $331,417 $306,672 8%
Unallocated amounts:
Interest, net (55,070) (45,155)
Corporate expense (50,733) (49,720)
Restructuring charge (5,041) (26,402)
Income before income taxes $220,573 $185,395
(1) Earnings before interest and taxes (EBIT) excludes general corporate
expenses.
(2) Prior year amounts have been reclassified to conform with the current
year presentation.
Pitney Bowes Inc.
Revenue and EBIT
Business Segments
June 30, 2006
(Unaudited)
(Dollars in thousands)
%
2006 2005(2) Change
Year to Date
Revenue
U.S. Mailing $1,142,757 $1,111,883 3%
International Mailing 488,998 460,167 6%
Production Mail 250,056 244,778 2%
Software 89,635 74,055 21%
Mailstream Solutions 1,971,446 1,890,883 4%
Management Services 535,051 543,473 (2%)
Mail Services 184,847 163,915 13%
Marketing Services 59,511 12,265 385%
Mailstream Services 779,409 719,653 8%
Total Revenue $2,750,855 $2,610,536 5%
EBIT (1)
U.S. Mailing $465,479 $443,773 5%
International Mailing 87,722 93,419 (6%)
Production Mail 18,844 10,569 78%
Software 9,617 6,563 47%
Mailstream Solutions 581,662 554,324 5%
Management Services 42,391 31,995 32%
Mail Services 20,656 7,347 181%
Marketing Services 5,716 2,266 152%
Mailstream Services 68,763 41,608 65%
Total EBIT $650,425 $595,932 9%
Unallocated amounts:
Interest, net (108,638) (87,065)
Corporate expense (97,220) (94,979)
Restructuring charge (10,638) (10,562)
Other expense - (10,000)
Income before income taxes $433,929 $393,326
(1) Earnings before interest and taxes (EBIT) excludes general corporate
expenses.
(2) Prior year amounts have been reclassified to conform with the current
year presentation.
Pitney Bowes Inc.
Reconciliation of Reported Consolidated Results to Adjusted Results
(Unaudited)
(Dollars in thousands, except per share amounts)
Three months ended Six months ended
June 30, June 30,
2006 2005 2006 2005
GAAP income from continuing
operations after income taxes,
as reported $121,252 $121,240 $258,111 $256,602
Restructuring charge 3,227 16,897 6,809 7,666
Tax settlement 20,000 - 20,000 -
Contributions to charitable
foundations - - - 6,100
Income from continuing operations
before income taxes, as adjusted $144,479 $138,137 $284,920 $270,368
GAAP diluted earnings per share,
as reported $0.54 $0.52 $1.14 $1.10
Restructuring charge 0.01 0.07 0.03 0.03
Tax settlement 0.09 - 0.09 -
Contributions to charitable
foundations - - - 0.03
Diluted earnings per share from
continuing operations, as adjusted $0.64 $0.59 $1.26 $1.16
GAAP net cash provided by
operating activities,
as reported $143,330 $19,462 $429,564 $209,533
Capital expenditures (76,502) (68,141) (159,517) (147,680)
Restructuring payments and
other 2,785 (13,554) (9,190) (9,657)
Contributions to charitable
foundations - - - 10,000
IRS bond payment - 200,000 - 200,000
Free cash flow, as adjusted $69,613 $137,767 $260,857 $262,196
`
Note: The sum of the earnings per share amounts may not equal the totals above due to rounding.
SOURCE Pitney Bowes Inc.
-0- 07/24/2006
/CONTACT: Editorial: Sheryl Y. Battles, VP, Corp. Communications, +1-203-
351-6808, or Financial: Charles F. McBride, VP, Investor Relations, +1-203-
351-6349, both of Pitney Bowes Inc./
/Web site: http://www.pb.com
http://www.pb.com/investorrelations /
(PBI)
CO: Pitney Bowes Inc.
ST: Connecticut
IN: FIN OFP
SU: ERN ERP CCA
DO
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9308 07/24/2006 16:01 EDT http://www.prnewswire.com