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Pitney Bowes Announces Second Quarter Results for 2008
STAMFORD, Conn.--(BUSINESS WIRE)--Aug. 4, 2008--Pitney Bowes Inc. (NYSE:PBI) today reported second quarter 2008 financial results.
Revenue increased 3 percent to $1.6 billion and adjusted income from continuing operations was $144 million. Adjusted income for the quarter excludes charges related to restructuring initiatives that the company announced on November 15, 2007 to reduce costs, accelerate operational improvements and transition its product line. On a Generally Accepted Accounting Principles (GAAP) basis, the company reported income from continuing operations of $131 million and net income of $128.5 million.
Adjusted earnings per diluted share from continuing operations for the second quarter was $0.69, which compares with $0.71 for the prior year, when the company benefited from sales of equipment that helped customers comply with the provisions of the U.S. Postal Service rate case, which requires that postage be based on shape as well as weight. On a GAAP basis, the company reported earnings per diluted share from continuing operations of $0.63 for the quarter, compared with $0.69 per diluted share for the prior year. Diluted earnings per share for the quarter was $0.61 including discontinued operations, compared with $0.68 in the prior year.
The company's results for the quarter are further summarized in the table below:
----------------------------------------------------------------------
Second Quarter
----------------------------------------------------------------------
Adjusted EPS $0.69
----------------------------------------------------------------------
Restructuring & Asset Impairments ($0.06)
----------------------------------------------------------------------
GAAP EPS from Continuing Operations $0.63
----------------------------------------------------------------------
Discontinued Operations ($0.01)
----------------------------------------------------------------------
GAAP EPS $0.61*
----------------------------------------------------------------------
* Note: The sum of the EPS amounts do not equal the totals above due
to rounding
Free cash flow for the quarter was $205 million, while cash from operations was $213 million. Year-to-date, free cash flow was $401 million, while cash from operations was $461 million.
During the quarter, the company used $73 million of cash for dividends and $92 million to buy back 2.6 million of its shares. The remaining authorization for future share repurchases was $134 million at the end of the second quarter. Year-to-date, the company has returned $419 million to shareholders in the form of dividends and share repurchases.
Commenting on the company's performance, President and CEO Murray D. Martin noted, "We are pleased that we remain on target to deliver full-year financial results consistent with our original guidance despite difficult comparisons for the first half of the year, and the challenging economic environment. We continue to experience strengthening demand in key markets outside of the U.S. for a wide range of our solutions and services that help businesses target, personalize, produce and distribute relevant communications to their customers. As we did in the first quarter, we are pleased to again increase our annual free cash flow guidance based on the year-to-date strong generation of cash, and our continued focus on working capital and expense management for the balance of the year.
"At the end of the quarter we concluded our strategic review of the U.S. Management Services operations and decided to retain and grow this business. During the review, we identified and began to execute actions to enhance Management Services' profitability and long-term performance. We have already begun to see the benefits of these actions reflected in the operation's improving margins."
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, customer communication, and location intelligence software.
In the second quarter, Mailstream Solutions revenue declined 1 percent to $1.1 billion compared with the prior year, and earnings before interest and taxes (EBIT) declined 10 percent to $294 million.
Within Mailstream Solutions:
As anticipated, U.S. Mailing's weaker revenue and unfavorable EBIT comparisons for the quarter reflected higher equipment sales in the prior year due to the 2007 postal rate case. This quarter's results were also impacted by weak economic conditions and the slowing of the U.S. Postal Service's mandated meter technology transition, which ends in December. The segment's revenue declined 14 percent to $551 million due primarily to the decline in higher margin equipment sales related to shape-based pricing, resulting in a 16 percent EBIT decline to $221 million.
International Mailing's revenue grew 20 percent to $302 million and EBIT increased 41 percent to $51 million. The segment's revenue grew 6 percent, excluding the effects of currency and acquisitions. Revenue growth benefited by about 12 percent from favorable currency translation and by about 1 percent from acquisitions. Revenue growth also benefited from increased equipment sales in the UK and France, and continued good growth in supplies. EBIT margin comparisons with the prior year were favorably affected by an improving cost structure in Europe and a legal settlement during the quarter which increased margins by about 250 basis points.
Worldwide revenue for Production Mail grew 3 percent to $149 million while EBIT decreased 18 percent to $15 million. Favorable currency translation contributed about 5 percent to revenue growth. The revenue benefits from higher equipment placements in the UK and France were offset by lower equipment sales in the U.S. and parts of Europe. The EBIT margin declined primarily due to favorable net legal recoveries in Europe last year, which improved margins by about 200 basis points and a change in the geographic mix of business this year.
Software revenue increased 23 percent to $102 million, while EBIT decreased 27 percent to $6 million. Software sales grew at a double-digit pace outside of the U.S., but declined within the U.S. as a result of weak economic conditions, causing some large enterprise accounts to defer their purchase decisions. Revenue grew 3 percent, excluding the effects of currency and acquisitions. Acquisitions, including MapInfo, contributed 16 percent to revenue growth and favorable currency translation contributed about 4 percent. The decline in EBIT margin was due to the timing of the acquisition of MapInfo in mid-April 2007, product mix, and the planned global investment in sales, marketing and research and development.
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 mail services; and marketing services.
For the quarter, Mailstream Services reported revenue growth of 14 percent to $484 million, and an EBIT increase of 37 percent to $38 million versus the prior year.
Within Mailstream Services:
Management Services' revenue increased 9 percent to $300 million for the quarter while EBIT increased 14 percent to $18 million. The segment's revenue growth for the quarter benefited from last year's acquisition of a French business services company, which added about 9 percent to revenue growth, and favorable currency translation, which added about 3 percent to revenue growth. The segment's revenue was further affected by lower transaction volumes for some U.S. financial services customers. EBIT margin in the segment benefited from improvements in the U.S., where the company focused on reducing costs, particularly through several productivity initiatives. The margin benefits from the U.S. actions were partially offset by the costs associated with the acquisition in France.
During its recently concluded strategic review of the U.S. Management Services operations, the company identified several opportunities to drive future growth and enhance profitability by deploying new solutions, bringing greater technology to traditional mail and print management services, and driving further integration of end-to-end solutions that incorporate more of the full suite of Pitney Bowes capabilities.
Mail Services revenue grew 23 percent to $135 million and EBIT grew 46 percent to $16 million. Revenue growth was driven by both presort and international mail services. EBIT benefited from operating leverage from the increase in mail volume processed and increased operating efficiencies. Acquisitions added about 8 percent to revenue growth.
Marketing Services revenue increased 21 percent to $48 million. The segment's results benefited from the continued expansion of marketing services programs, and acquisitions which added about 11 percent to revenue growth. The segment's EBIT margin improved by approximately 4 percentage points versus the prior year as a result of the company's phased exit from the motor vehicle registration services program.
2008 Guidance
Based upon the first half-year results and the outlook for the remainder of the year, the company increased full-year free cash flow guidance to a range of $675 to $750 million and reaffirmed 2008 expected revenue growth of 6 to 9 percent, and adjusted earnings per diluted share from continuing operations of $2.80 to $2.90.
Adjusted earnings per diluted share excludes charges related to the initiatives that the company announced on November 15, 2007 to reduce costs, accelerate improvements in operational efficiency, and transition its product line. Adjusted earnings per diluted share also excludes a first quarter tax adjustment associated with a UK leasing program that ended in 2002. The company anticipates that the restructuring and asset impairment charges in 2008 in connection with the transition initiatives will be in the range of $50 million to $100 million ($0.15 to $0.30 per diluted share).
On a GAAP basis, earnings per diluted share from continuing operations is expected to be in the range of $2.47 to $2.72.
The 2008 earnings guidance is summarized in the table below.
---------------------------------------------------------------------- Continuing Operations Full Year 2008 Full Year 2007 ---------------------------------------------------------------------- Adjusted EPS $2.80 to $2.90 $2.72 ---------------------------------------------------------------------- Restructuring & Asset ($0.15 to $0.30) Impairments ($0.87) ---------------------------------------------------------------------- Tax Adjustments ($0.03) ($0.16) ---------------------------------------------------------------------- MapInfo Accounting N/A ($0.05) ---------------------------------------------------------------------- GAAP EPS $2.47 to $2.72 $1.63* ---------------------------------------------------------------------- * Note: The sum of the EPS amounts do not equal the totals above due to rounding
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 engineers the flow of communication. The company is a $6.3 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 transition initiatives, restructuring charges, accounting adjustments and write downs of assets, which materially impact the comparability of the company's results of operations. Although transition initiatives and 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 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, 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 June 30, 2008. 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, and our expected diluted earnings per share for the full year 2008. 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 2007 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; revenue and EBIT by business segment; and reconciliation of GAAP to non-GAAP measures for the three and six months ended June 30, 2008 and 2007, and consolidated balance sheets at June 30, 2008 and March 31, 2008, are attached.
Pitney Bowes Inc.
Consolidated Statements of Income
(Unaudited)
----------------------------------------------------------------------
(Dollars in thousands, except per share
data)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- --------------------------
2008 2007 2008 2007
------------- ------------- ------------ -------------
Revenue from:
Equipment sales$ 311,650 $ 360,361 $ 614,363 $ 653,971
Supplies 101,286 96,398 208,886 196,700
Software 109,120 88,242 214,525 131,324
Rentals 185,855 180,911 370,808 368,981
Financing 197,263 194,837 396,202 385,417
Support
services 194,955 192,773 386,480 379,077
Business
services 487,957 429,512 970,779 841,801
------------- ------------- ------------ -------------
Total
revenue 1,588,086 1,543,034 3,162,043 2,957,271
------------- ------------- ------------ -------------
Costs and
expenses:
Cost of
equipment
sales 166,282 168,958 327,395 317,214
Cost of
supplies 26,419 24,725 54,291 50,848
Cost of
software 26,453 21,076 54,190 32,624
Cost of
rentals 39,671 43,261 77,975 85,682
Cost of support
services 115,931 107,317 229,926 212,821
Cost of
business
services 383,009 339,972 762,300 663,623
Selling,
general and
administrative 497,689 488,115 994,184 913,517
Research and
development 53,168 47,104 103,168 90,673
Interest, net 54,127 62,541 112,904 119,268
Restructuring
and asset
impairments 18,815 - 35,908 -
------------- ------------- ------------ -------------
Total
costs
and
expenses 1,381,564 1,303,069 2,752,241 2,486,270
------------- ------------- ------------ -------------
Income from
continuing
operations
before income
taxes 206,522 239,965 409,802 471,001
Provision for
income taxes 70,386 81,588 145,933 161,294
Minority
interest 4,796 4,796 9,594 9,542
------------- ------------- ------------ -------------
Income from
continuing
operations 131,340 153,581 254,275 300,165
Discontinued
operations (2,831) (1,342) (6,663) (3,130)
------------- ------------- ------------ -------------
Net income $ 128,509 $ 152,239 $ 247,612 $ 297,035
============= ============= ============ =============
Basic earnings
per share
Continuing
operations $ 0.63 $ 0.70 $ 1.21 $ 1.37
Discontinued
operations (0.01) (0.01) (0.03) (0.01)
------------- ------------- ------------ -------------
Net income $ 0.62 $ 0.69 $ 1.18 $ 1.35
============= ============= ============ =============
Diluted earnings
per share
Continuing
operations $ 0.63 $ 0.69 $ 1.20 $ 1.35
Discontinued
operations (0.01) (0.01) (0.03) (0.01)
------------- ------------- ------------ -------------
Net income $ 0.61 $ 0.68 $ 1.17 $ 1.33
============= ============= ============ =============
Average common
and potential
common
shares
outstanding 209,543,013 222,481,360 211,481,391 222,968,478
============= ============= ============ =============
Note: The sum of the earnings per share amounts may not equal the
totals above due to rounding.
Pitney Bowes Inc.
Revenue and EBIT
Business Segments
June 30, 2008
(Unaudited)
----------------------------------------------------------------------
(Dollars in thousands)
%
2008 2007 Change
----------- ----------- ------
Second Quarter
--------------------------------------
Revenue
----------------------------------
U.S. Mailing $ 550,849 $ 638,045 (14%)
International Mailing 302,085 252,390 20%
Production Mail 149,400 145,235 3%
Software 102,250 82,821 23%
----------- ----------- ------
Mailstream Solutions 1,104,584 1,118,491 (1%)
Management Services 300,454 275,052 9%
Mail Services 134,764 109,455 23%
Marketing Services 48,284 40,036 21%
----------- ----------- ------
Mailstream Services 483,502 424,543 14%
----------- ----------- ------
Total Revenue $1,588,086 $1,543,034 3%
----------- ----------- ------
EBIT (1)
----------------------------------
U.S. Mailing $ 220,526 $ 263,729 (16%)
International Mailing 51,462 36,621 41%
Production Mail 15,350 18,702 (18%)
Software 6,317 8,617 (27%)
----------- ----------- ------
Mailstream Solutions 293,655 327,669 (10%)
Management Services 18,230 16,005 14%
Mail Services 15,980 10,961 46%
Marketing Services 3,527 619 470%
----------- ----------- ------
Mailstream Services 37,737 27,585 37%
----------- ----------- ------
Total EBIT $ 331,392 $ 355,254 (7%)
----------- ----------- ------
Unallocated amounts:
Interest, net (54,127) (62,541)
Corporate expense (51,928) (52,748)
Restructuring charges (18,815) -
----------- -----------
Income before income taxes $ 206,522 $ 239,965
=========== ===========
(1) Earnings before interest and taxes (EBIT) excludes general
corporate expenses and restructuring and asset impairment
charges.
Pitney Bowes Inc.
Revenue and EBIT
Business Segments
June 30, 2008
(Unaudited)
----------------------------------------------------------------------
(Dollars in thousands)
%
2008 2007 Change
----------- ----------- ------
Year To Date
--------------------------------------
Revenue
----------------------------------
U.S. Mailing $1,103,434 $1,218,048 (9%)
International Mailing 610,418 510,240 20%
Production Mail 284,804 274,536 4%
Software 201,913 121,372 66%
----------- ----------- ------
Mailstream Solutions 2,200,569 2,124,196 4%
Management Services 603,089 547,711 10%
Mail Services 260,186 210,057 24%
Marketing Services 98,199 75,307 30%
----------- ----------- ------
Mailstream Services 961,474 833,075 15%
----------- ----------- ------
Total Revenue $3,162,043 $2,957,271 7%
----------- ----------- ------
EBIT (1)
----------------------------------
U.S. Mailing $ 444,481 $ 508,147 (13%)
International Mailing 101,397 82,887 22%
Production Mail 23,933 25,585 (6%)
Software 12,795 11,874 8%
----------- ----------- ------
Mailstream Solutions 582,606 628,493 (7%)
Management Services 36,867 36,789 0%
Mail Services 34,369 22,770 51%
Marketing Services 5,279 1,139 364%
----------- ----------- ------
Mailstream Services 76,515 60,698 26%
----------- ----------- ------
Total EBIT $ 659,121 $ 689,191 (4%)
----------- ----------- ------
Unallocated amounts:
Interest, net (112,904) (119,268)
Corporate expense (100,507) (98,922)
Restructuring charges (35,908) -
----------- -----------
Income before income taxes $ 409,802 $ 471,001
=========== ===========
(1) Earnings before interest and taxes (EBIT) excludes general
corporate expenses and restructuring and asset impairment
charges.
Pitney Bowes Inc.
Consolidated Balance Sheets
(Unaudited)
----------------------------------------------------------------------
(Dollars in thousands, except per share data)
Assets 06/30/08 03/31/08
----------- ------------ ------------
Current assets:
Cash and cash equivalents $ 429,412 $ 397,786
Short-term investments 26,842 68,112
Accounts receivable, less allowances:
06/08 $51,406 03/08 $52,537 880,918 853,236
Finance receivables, less allowances:
06/08 $43,985 03/08 $44,017 1,481,158 1,484,342
Inventories 214,110 218,036
Current income taxes 92,392 89,409
Other current assets and prepayments 263,806 268,401
------------ ------------
Total current assets 3,388,638 3,379,322
Property, plant and equipment, net 610,080 613,590
Rental property and equipment, net 430,255 434,624
Long-term finance receivables, less
allowances:
06/08 $28,803 03/08 $30,932 1,506,636 1,522,087
Investment in leveraged leases 242,853 239,847
Goodwill 2,393,229 2,343,049
Intangible assets, net 439,405 444,120
Non-current income taxes 31,659 31,014
Other assets 610,884 621,897
------------ ------------
Total assets $ 9,653,639 $ 9,629,550
============ ============
Liabilities and stockholders' equity
---------------------------------------
Current liabilities:
Accounts payable and accrued
liabilities $ 1,915,896 $ 1,893,884
Current income taxes 112,639 140,876
Notes payable and current portion of
long-term obligations 866,862 818,503
Advance billings 593,666 597,935
------------ ------------
Total current liabilities 3,489,063 3,451,198
Deferred taxes on income 495,828 473,342
FIN 48 uncertainties and other income
tax liabilities 298,962 291,859
Long-term debt 4,013,910 4,047,013
Other noncurrent liabilities 427,993 428,339
------------ ------------
Total liabilities 8,725,756 8,691,751
------------ ------------
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 983 987
Common stock, $1 par value 323,338 323,338
Capital in excess of par value 248,681 246,992
Retained earnings 4,234,666 4,178,725
Accumulated other comprehensive income 134,629 130,163
Treasury stock, at cost (4,398,586) (4,326,578)
------------ ------------
Total stockholders' equity 543,718 553,634
------------ ------------
Total liabilities and stockholders'
equity $ 9,653,639 $ 9,629,550
============ ============
Pitney Bowes Inc.
Reconciliation of Reported Consolidated Results to Adjusted Results
(Unaudited)
(Dollars in thousands, except per share amounts)
Three months ended June Six months ended June
30, 30,
-------------------------- ---------------------
2008 2007 2008 2007
---------------- --------- ---------- ----------
GAAP income from
continuing operations
after income taxes,
as reported $131,340 $153,581 $ 254,275 $ 300,165
Restructuring and
asset impairments 12,393 - 22,745 -
Tax adjustment - - 6,480 -
MapInfo Purchase
accounting - 5,214 322 5,214
---------------- --------- ---------- ----------
Income from continuing
operations
after income taxes,
as adjusted $143,733 $158,795 $ 283,822 $ 305,379
================ ========= ========== ==========
GAAP diluted earnings
per share from
continuing
operations, as
reported $ 0.63 $ 0.69 $ 1.20 $ 1.35
Restructuring and
asset impairments 0.06 - 0.11 -
Tax adjustment - - 0.03 -
MapInfo Purchase
accounting - 0.02 0.00 0.02
---------------- --------- ---------- ----------
Diluted earnings per
share from continuing
operations, as
adjusted $ 0.69 $ 0.71 $ 1.34 $ 1.37
================ ========= ========== ==========
GAAP net cash provided
by operating
activities, as
reported $212,517 $186,751 $ 460,854 $ 406,976
Capital
expenditures (58,413) (60,850) (115,346) (128,421)
Restructuring
payments and
discontinued
operations 24,817 8,983 37,510 22,389
Reserve account
deposits 25,685 20,456 18,452 9,504
---------------- --------- ---------- ----------
Free cash flow, as
adjusted $204,606 $155,340 $ 401,470 $ 310,448
================ ========= ========== ==========
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, 203-351-6808
VP, Corp. Communications
or
Financial:
Charles F. McBride, 203-351-6349
VP, Investor Relations
www.pitneybowes.com
SOURCE: Pitney Bowes Inc.