<< Back
Pitney Bowes Announces Third Quarter Results for 2008
STAMFORD, Conn.--(BUSINESS WIRE)--Nov. 3, 2008--Pitney Bowes Inc. (NYSE:PBI) today reported third quarter 2008 financial results.
The company's third quarter revenue increased 3 percent to $1.5 billion and adjusted income from continuing operations was $139 million. Adjusted income for the quarter excludes pre-tax charges of $40 million related to previously announced restructuring initiatives to reduce costs, accelerate operational improvements and transition the company's product lines. Adjusted income also excludes $9 million of pre-tax charges related to impairments of certain intangible assets in the Management Services and Marketing Services segments. On a Generally Accepted Accounting Principles (GAAP) basis, the company reported income from continuing operations of $100 million and net income of $98 million.
Adjusted earnings per diluted share from continuing operations for the third quarter was $0.67, which compares with $0.63 for the prior year. On a GAAP basis, the company reported earnings per diluted share from continuing operations of $0.48 for the quarter, compared with $0.58 per diluted share for the prior year. Earnings per diluted share for the quarter was $0.47 including discontinued operations, compared with $0.58 in the prior year.
The company's results for the quarter are further summarized in the table below:
----------------------------------------------------------------------
Third Quarter
----------------------------------------------------------------------
Adjusted EPS $0.67
----------------------------------------------------------------------
Restructuring & Asset Impairments ($0.19)
----------------------------------------------------------------------
GAAP EPS from Continuing Operations $0.48
----------------------------------------------------------------------
Discontinued Operations ($0.01)
----------------------------------------------------------------------
GAAP EPS $0.47
----------------------------------------------------------------------
Free cash flow for the quarter was $252 million, while on a GAAP basis cash from operations was $281 million. Year-to-date, free cash flow was $653 million, while on a GAAP basis cash from operations was $742 million.
During the quarter, the company used $73 million of cash for dividends and $61 million to buy back 1.7 million of its shares. The remaining authorization for future share repurchases was $73 million at the end of the third quarter. Year-to-date, the company has returned $553 million to shareholders in the form of dividends and share repurchases.
Commenting on the company's performance, President and CEO Murray D. Martin noted, "Our business model of high recurring revenue and our diverse customer base provide us with a measure of stability as these turbulent economic events unfold around the world. The rapid and significant appreciation of the U.S. dollar near the end of the quarter resulted in a slightly negative impact on earnings versus the prior year and had a $0.03 negative impact on the third quarter versus the second quarter earnings.
"Concerns about the availability of credit and the status of the economy have delayed some customers' buying decisions, particularly for large ticket sales in our software and production mail businesses. However, aggressive cost management, as part of the transition initiatives we began at the end of last year, reduced our cost structure as a percent of revenue, and improved our year-over-year EBIT margins in U.S. Mailing, International Mailing, U.S. Management Services, Production Mail, and Marketing Services.
"We continue to generate very strong free cash flow and expect that trend to continue. In fact, we are forecasting annual free cash flow in excess of $800 million, marking our third and largest increase in our outlook this year.
"The combination of our business model, strong free cash flow, and excellent credit ratings has allowed us continuous access to the commercial paper markets. We have issued commercial paper at more normal maturity levels and at favorable interest rates, even during this period of market uncertainty. Our strong liquidity position enables us to satisfy all of our financing needs. We will continue to be prudent on how we spend and invest our cash to maximize shareholder return."
Business Segment Results
Mailstream Solutions revenue was $1.1 billion which was equal to last year, while earnings before interest and taxes (EBIT) grew 3 percent to $291 million when compared with the prior year.
Within Mailstream Solutions:
U.S. Mailing's revenue declined 5 percent to $549 million and EBIT declined one percent to $223 million. Because of actions the company has taken to reduce costs, the EBIT margin for U.S. Mailing improved to 40.6 percent. The decline in revenue was due primarily to lower mailing equipment and supplies sales as many government and major account customers deferred upgrade decisions for new equipment or extended leases on existing equipment.
International Mailing's revenue grew 7 percent to $272 million and EBIT increased 23 percent to $41 million. Revenue growth benefited from increased rentals in France; increased equipment sales in Norway, other parts of Europe, and Asia; and continued good growth in supplies. Revenue growth also benefited by about 4 percent from favorable currency translation and by about 2 percent from acquisitions. EBIT margin comparisons with the prior year were favorably affected by an improving administrative cost structure in Europe.
Worldwide revenue for Production Mail grew 2 percent to $155 million and EBIT increased 37 percent to $23 million. Favorable currency translation contributed about 2 percent to revenue growth. Revenue growth from higher equipment placements in the UK, Germany and other parts of Europe was offset by lower equipment sales in the U.S., where economic uncertainty has slowed large-ticket capital investment for many large financial services companies. The EBIT margin improved due to aggressive cost actions in anticipation of delayed buying decisions.
Software revenue increased 7 percent to $94 million while EBIT decreased 39 percent to $3 million. Revenue was flat, when compared with the prior year, after excluding the effect of acquisitions, which contributed about 7 percent to revenue growth. Software sales were adversely affected by the ongoing weak economic conditions worldwide causing some large enterprise accounts to continue to postpone their purchase decisions. The decline in EBIT margin was due to the planned global investment in sales and marketing, increased investment in research and development, as well as lower revenue growth.
Mailstream Services reported revenue growth of 9 percent to $478 million, while EBIT declined one percent to $38 million when compared with the prior year.
Within Mailstream Services:
Management Services' revenue increased 4 percent to $288 million while EBIT decreased 6 percent to $16 million. The segment's revenue growth for the quarter benefited from last year's acquisition of a French business services company, which added about 6 percent to revenue growth, and favorable currency translation, which added about one percent to revenue growth. Revenue growth was adversely affected by lower transaction volumes for some customers, especially in the U.S. financial services sector. EBIT margin in the segment benefited from improvements in the U.S., where the margin increased to our near-term target of 10 percent because of the company's focus on productivity initiatives. However, the margin benefits from the U.S. actions were more than offset by the costs associated with the acquisition in France.
Mail Services revenue grew 25 percent to $140 million, while EBIT decreased one percent to $15 million. Revenue growth was driven by both presort and international mail services. Acquisitions added about 14 percent to revenue growth. As has been the case in past expansion periods, the EBIT benefits from operating leverage were more than offset in the quarter by the costs associated with the acquisition of a multi-site presort operation in the U.S. and two UK international mail services sites. The company expects positive EBIT margin contributions from these sites in 2009 as they become fully integrated.
Marketing Services revenue increased 4 percent to $50 million and EBIT increased 15 percent to $6 million. The company's phased exit from the motor vehicle registration services program adversely affected the segment's revenue growth, while positively impacting EBIT margin versus the prior year.
2008 Guidance
Based upon the year-to-date results and the outlook for the remainder of the year, the company's full-year free cash flow is expected to exceed $800 million. The company has revised its revenue growth expectations for the year to 2 to 4 percent and its expected adjusted earnings per diluted share from continuing operations for the year to $2.75 to $2.82, primarily due to the rapid and significant strengthening of the U.S. dollar, as well as the uncertainty resulting from the weak economic environment. This guidance is based on exchange rates in effect on October 31, 2008.
Based on actions identified to date, the company expects to incur full-year pre-tax charges for restructuring and asset impairments of approximately $100 million or $0.35 per diluted share, of which $85 million or $0.30 per diluted share has been recorded during the first nine months of the year. The company is identifying further actions before the end of the year to reduce its cost structure and improve operational efficiency.
On a GAAP basis, earnings per diluted share from continuing operations is expected to be in the range of $2.37 to $2.44.
The 2008 earnings guidance is summarized in the table below.
---------------------------------------------------------------------- Continuing Operations Full Year 2008 Full Year 2007 ---------------------------------------------------------------------- Adjusted EPS $2.75 to $2.82 $2.72 ---------------------------------------------------------------------- Restructuring & Asset Impairments ($0.35) ($0.87) ---------------------------------------------------------------------- Tax Adjustments ($0.03) ($0.16) ---------------------------------------------------------------------- MapInfo Accounting N/A ($0.05) ---------------------------------------------------------------------- GAAP EPS $2.37 to $2.44 $1.63* ----------------------------------------------------------------------
* Note: The sum of the EPS amounts do not equal the totals above due to rounding
In conclusion Mr. Martin noted, "While we anticipate continued economic uncertainty for the remainder of 2008 and into 2009, our products and services are designed to provide efficiencies, cost savings and revenue growth opportunities for our customers. We will also continue to aggressively manage our cost structure. As a result, we believe we are well positioned to continue to grow our earnings in the fourth quarter and during 2009 despite these market challenges."
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 $6.4 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 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 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 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, 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: the uncertain economic environment, 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; changes in foreign currency exchange rates; changes in tax rates; and changes in postal regulations, as more fully outlined in the company's 2007 Form 10-K Annual Report and other reports 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 nine months ended September 30, 2008 and 2007, and consolidated balance sheets at September 30 and June 30, 2008, 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,
--------------------------- ---------------------------
2008 2007 2008 2007
------------- ------------- ------------- -------------
Revenue:
Equipment
sales $ 296,520 $ 307,897 $ 910,883 $ 961,868
Supplies 96,864 95,497 305,750 292,197
Software 100,092 92,256 314,617 223,580
Rentals 182,850 183,452 553,658 552,433
Financing 195,632 201,241 591,834 586,658
Support
services 193,516 185,520 579,996 564,597
Business
services 482,199 442,414 1,452,978 1,284,215
------------- ------------- ------------- -------------
Total
revenue 1,547,673 1,508,277 4,709,716 4,465,548
------------- ------------- ------------- -------------
Costs and
expenses:
Cost of
equipment
sales 157,593 164,659 484,988 481,873
Cost of
supplies 26,382 27,061 80,673 77,909
Cost of
software 25,917 21,749 80,107 54,373
Cost of
rentals 36,252 42,630 114,227 128,312
Cost of
support
services 113,581 108,011 343,507 320,832
Cost of
business
services 375,949 345,024 1,138,249 1,008,647
Selling,
general and
administrative 478,914 479,772 1,473,098 1,393,289
Research and
development 53,008 47,691 156,176 138,364
Interest, net 54,560 60,386 167,464 179,654
Restructuring
charges and
asset
impairments 49,229 4,300 85,137 4,300
Other expense
(income) - (380) - (380)
------------- ------------- ------------- -------------
Total costs
and
expenses 1,371,385 1,300,903 4,123,626 3,787,173
------------- ------------- ------------- -------------
Income from
continuing
operations
before income
taxes and
minority
interest 176,288 207,374 586,090 678,375
Provision for
income taxes 69,456 73,272 215,389 234,566
Minority
interest
(preferred
stock
dividends of
subsidiaries) 6,540 4,862 16,134 14,404
------------- ------------- ------------- -------------
Income from
continuing
operations 100,292 129,240 354,567 429,405
Loss from
discontinued
operations,
net of tax (2,063) (1,565) (8,726) (4,695)
------------- ------------- ------------- -------------
Net income $ 98,229 $ 127,675 $ 345,841 $ 424,710
============= ============= ============= =============
Basic earnings
per share of
common stock:
Continuing
operations $ 0.48 $ 0.59 $ 1.70 $ 1.96
Discontinued
operations (0.01) (0.01) (0.04) (0.02)
------------- ------------- ------------- -------------
Net income $ 0.47 $ 0.58 $ 1.65 $ 1.94
============= ============= ============= =============
Diluted
earnings per
share of
common stock:
Continuing
operations $ 0.48 $ 0.58 $ 1.68 $ 1.93
Discontinued
operations (0.01) (0.01) (0.04) (0.02)
------------- ------------- ------------- -------------
Net income $ 0.47 $ 0.58 $ 1.64 $ 1.91
============= ============= ============= =============
Average common
and potential
common shares
outstanding 208,655,671 221,027,506 210,586,568 222,280,355
============= ============= ============= =============
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
September 30, 2008
(Unaudited)
----------------------------------------------------------------------
(Dollars in thousands)
%
2008 2007 Change
----------- ----------- ------
Third Quarter
--------------------------------------
Revenue
---------------------------------
U.S. Mailing $ 549,360 $ 575,782 (5%)
International Mailing 271,727 254,001 7%
Production Mail 154,554 151,857 2%
Software 94,221 88,437 7%
----------- -----------
Mailstream Solutions 1,069,862 1,070,077 (0%)
----------- -----------
Management Services 287,989 278,167 4%
Mail Services 139,689 111,785 25%
Marketing Services 50,133 48,248 4%
----------- -----------
Mailstream Services 477,811 438,200 9%
----------- -----------
Total Revenue $1,547,673 $1,508,277 3%
=========== ===========
EBIT (1)
---------------------------------
U.S. Mailing $ 223,141 $ 226,061 (1%)
International Mailing 41,123 33,424 23%
Production Mail 23,183 16,877 37%
Software 3,167 5,159 (39%)
----------- -----------
Mailstream Solutions 290,614 281,521 3%
----------- -----------
Management Services 16,064 17,140 (6%)
Mail Services 15,467 15,702 (1%)
Marketing Services 6,126 5,310 15%
----------- -----------
Mailstream Services 37,657 38,152 (1%)
----------- -----------
Total EBIT 328,271 319,673 3%
Unallocated amounts:
Interest, net (54,560) (60,386)
Corporate expense (48,194) (47,993)
Restructuring charges and
asset impairments (49,229) (4,300)
Other income, net - 380
----------- -----------
Income before income taxes $ 176,288 $ 207,374
=========== ===========
(1) Earnings before interest and taxes (EBIT) excludes general
corporate expenses and restructuring charges and asset
impairments.
Pitney Bowes Inc.
Revenue and EBIT
Business Segments
September 30, 2008
(Unaudited)
----------------------------------------------------------------------
(Dollars in thousands)
%
2008 2007 Change
----------- ----------- ------
Year To Date
--------------------------------------
Revenue
----------------------------------
U.S. Mailing $1,652,794 $1,793,830 (8%)
International Mailing 882,145 764,241 15%
Production Mail 439,358 426,393 3%
Software 296,134 209,809 41%
----------- -----------
Mailstream Solutions 3,270,431 3,194,273 2%
----------- -----------
Management Services 891,078 825,878 8%
Mail Services 399,875 321,842 24%
Marketing Services 148,332 123,555 20%
----------- -----------
Mailstream Services 1,439,285 1,271,275 13%
----------- -----------
Total Revenue $4,709,716 $4,465,548 5%
=========== ===========
EBIT (1)
----------------------------------
U.S. Mailing $ 667,622 $ 734,208 (9%)
International Mailing 142,520 116,311 23%
Production Mail 47,116 42,462 11%
Software 15,962 17,033 (6%)
----------- -----------
Mailstream Solutions 873,220 910,014 (4%)
----------- -----------
Management Services 52,931 53,929 (2%)
Mail Services 49,836 38,472 30%
Marketing Services 11,405 6,449 77%
----------- -----------
Mailstream Services 114,172 98,850 16%
----------- -----------
Total EBIT 987,392 1,008,864 (2%)
Unallocated amounts:
Interest, net (167,464) (179,654)
Corporate expense (148,701) (146,915)
Restructuring charges and
asset impairments (85,137) (4,300)
Other income, net - 380
----------- -----------
Income before income taxes $ 586,090 $ 678,375
=========== ===========
(1) Earnings before interest and taxes (EBIT) excludes general
corporate expenses and restructuring charges and asset
impairments.
Pitney Bowes Inc.
Consolidated Balance Sheets
(Unaudited)
----------------------------------------------------------------------
(Dollars in thousands, except per
share data)
Assets 09/30/08 06/30/08
-------- ------------ ------------
Current assets:
Cash and cash equivalents $ 458,786 $ 429,412
Short-term investments 22,597 26,842
Accounts receivable, less
allowances:
09/08 $47,871 06/08 $51,406 829,963 880,918
Finance receivables, less
allowances:
09/08 $42,227 06/08 $43,985 1,450,981 1,481,158
Inventories 204,606 214,110
Current income taxes 76,633 92,392
Other current assets and
prepayments 256,346 263,806
------------ ------------
Total current assets 3,299,912 3,388,638
Property, plant and equipment, net 591,940 610,080
Rental property and equipment, net 407,220 430,255
Long-term finance receivables, less
allowances:
09/08 $26,189 06/08 $28,803 1,459,957 1,506,636
Investment in leveraged leases 237,417 242,853
Goodwill 2,311,588 2,393,229
Intangible assets, net 411,086 439,405
Non-current income taxes 43,580 31,659
Other assets 611,678 610,884
------------ ------------
Total assets $ 9,374,378 $ 9,653,639
============ ============
Liabilities and stockholders' equity
---------------------------------------
Current liabilities:
Accounts payable and accrued
liabilities $ 1,876,174 $ 1,915,896
Current income taxes 159,939 112,639
Notes payable and current portion of
long-term obligations 985,196 866,862
Advance billings 547,401 593,666
------------ ------------
Total current liabilities 3,568,710 3,489,063
Deferred taxes on income 470,506 495,828
FIN 48 uncertainties and other income
tax liabilities 303,881 298,962
Long-term debt 3,872,580 4,013,910
Other non-current liabilities 408,823 427,993
------------ ------------
Total liabilities 8,624,500 8,725,756
------------ ------------
Preferred stockholders' equity in
subsidiaries 374,165 384,165
------------ ------------
Stockholders' equity:
Cumulative preferred stock, $50 par
value, 4% convertible 7 7
Cumulative preference stock, no par
value, $2.12 convertible 977 983
Common stock, $1 par value 323,338 323,338
Capital in excess of par value 253,993 248,681
Retained earnings 4,260,150 4,234,666
Accumulated other comprehensive
income (7,112) 134,629
Treasury stock, at cost (4,455,640) (4,398,586)
------------ ------------
Total stockholders' equity 375,713 543,718
------------ ------------
Total liabilities and stockholders'
equity $ 9,374,378 $ 9,653,639
============ ============
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,
-------------------- ---------------------
2008 2007 2008 2007
--------- --------- ---------- ----------
GAAP income from
continuing operations
after income taxes, as
reported $100,292 $129,240 $ 354,567 $ 429,405
Restructuring charges
and asset impairments 39,117 2,460 61,862 2,460
Tax adjustment - 3,602 6,480 3,602
MapInfo Purchase
accounting - 3,864 322 9,079
Other items, net - (219) - (219)
--------- --------- ---------- ----------
Income from continuing
operations after income
taxes, as adjusted $139,409 $138,947 $ 423,231 $ 444,327
========= ========= ========== ==========
GAAP diluted earnings per
share from continuing
operations, as reported $ 0.48 $ 0.58 $ 1.68 $ 1.93
Restructuring charges
and asset impairments 0.19 0.01 0.29 0.01
Tax adjustment - 0.02 0.03 0.02
MapInfo Purchase
accounting - 0.02 0.00 0.04
Other items, net - (0.00) - (0.00)
--------- --------- ---------- ----------
Diluted earnings per share
from continuing
operations, as adjusted $ 0.67 $ 0.63 $ 2.01 $ 2.00
========= ========= ========== ==========
GAAP net cash provided by
operating activities, as
reported $280,848 $289,789 $ 741,702 $ 696,765
Capital expenditures (54,632) (73,592) (169,978) (202,013)
Restructuring
payments and
discontinued
operations 28,941 6,142 66,451 28,532
Loss on redemption of
preferred stock
issued by a
subsidiary (1,777) - (1,777) -
Reserve account
deposits (1,835) 17,002 16,617 26,506
--------- --------- ---------- ----------
Free cash flow, as
adjusted $251,545 $239,341 $ 653,015 $ 549,790
========= ========= ========== ==========
Note: The sum of the earnings per share amounts may not equal the
totals above due to rounding.
CONTACT: 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.