Pitney Bowes Inc. PBI reported second-quarter 2015 adjusted earnings from continuing operations of 45 cents per share, which surpassed the Zacks Consensus Estimate by a penny. However, on a year-over-year basis, adjusted earnings declined 2.2%.
Diligent operational execution by the company over the last two years supported the improvement in bottom line during the quarter. However, currency headwinds proved to be a drag on earnings this season.
Inside the Headlines
Total revenue for the quarter was $880.9 million, down 8.1% year over year on a reported basis.
Sales decline in the Small and Medium Business solutions (“SMB”) as well as Enterprise Business Solutions (“EBS”) was largely responsible for the lackluster top-line performance. Moreover, sales of the Digital Commerce Solutions (“DCS”) business, which has driven top-line growth in the past few quarters, were flat in the second quarter, adding to the company’s woes.
As for the segments, on a reported basis, SMB Solutions revenues slipped 10% year over year to $467.0 million. Softness in the North American Mailing business (down 4%) and poor equipment sales led to the unimpressive performance. Moreover, currency headwinds resulted in 13% revenue reduction for International mailing business (down 28%), thereby aggravating the fall.
Enterprise Business Solutions revenues declined 5% year over year to $212.0 million. This segment’s production mail business (down 13%) witnessed poor equipment sales in Europe and Asia. Also, weak sales from support services resulted in a challenging scenario. However, this fall was arrested to some extent by good business in Presort Services (up 2%).
Nevertheless, Pitney Bowes’ Digital Commerce Solutions reported sales of $177.0 million, flat on a year-over-year basis. Fall in sales from Software solutions (down 9%) more than offset the rise in sales from global e-commerce business (up 14%). New clients from shipping solutions drove the impressive performance of global e-commerce.
During the quarter, the company completed the acquisition of Borderfree for a total worth of $400 million and completed the divesture of Imagitas, its Marketing Services business that is expected to generate net proceeds of $270 million approximately.
Liquidity and Cash Flow
Free cash flow for the quarter fell 48.4% to $83.7 million.
As of Jun 30, 2015, the company’s cash and cash equivalents totaled $754.2 million, down from $1,079.1 million as of Dec 31, 2014. Long-term debt decreased to $2,473.1 million as of Jun 30, 2015 from $2,927.1 million as of Dec 31, 2014.
Outlook
Concurrent with the earnings release, Pitney Bowes raised its guidance for GAAP earnings from continuing operations to $2.06–$2.21 (previous range being $1.85–$2.00) per share. This increase mainly came on the back of gains associated with the sale of Imagitas.
Taking into account the impact of Borderfree acquisition and sale of Imagitas, the company has also updated its adjusted earnings guidance which now lies in the range of $1.75 to $1.90 per share.
For the second half of the year, the company expects revenues to grow within 1–5%; whereas for the full year, revenues are expected to lie in the range of 1% decline to 1% growth on a constant currency basis.
Our Take
Pitney Bowes has been good about stabilizing its mailing business by undertaking marketing initiatives like the go-to-market strategy. Designed to enhance its software business, the company’s go-to-market strategy is proving to be hugely beneficial. Also, the company’s focus on streamlining its operations by divesting non-core businesses bodes well for the long term.
Going forward, the company intends to tap opportunities in its core enterprises like the digital commerce business, which has immense growth potential. Also, the company plans to execute an authorized share repurchase program in the second half of the year to boost investors’ confidence in the stock.
Pitney Bowes currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks include Advanced Emissions Solutions, Inc. ADES, Pall Corporation PLL and Perma-Fix Environmental Services Inc. PESI. All three stocks carry a Zacks Rank #2 (Buy).
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