Factors Impacting Pitney Bowes Q3 2011 Earnings Results

On November 1, 2011 Pitney Bowes announced its Q3 2011 financial results which are highlighted below:
 

GAAP earnings per diluted share (EPS) for the quarter was $0.85, an increase of 98% when compared with the prior year.

Cash from operations for the quarter was $301 million, an increase of 24% when compared with the prior year.

There were a number of different factors affecting our earnings per diluted share (EPS) in the third quarter which we want to make sure that investors understand. At a high level, adjusted EPS in the quarter benefited from a tax settlement with the IRS and an insurance reimbursement we received related to a fire at our Dallas presort facility in the first quarter of the year. In addition, GAAP EPS from continuing operations benefited from the sale of some leveraged lease assets in Canada, but was reduced by restructuring charges and asset impairments and a goodwill charge in the quarter. GAAP EPS from discontinued operations also benefited from the tax settlement with the IRS.

 

 

So let’s walk through each of these items one at a time.

In July, the company and the IRS reached agreement on the tax treatment of a number of issues, as well as on revised tax calculations related to the tax examination years 2001 to 2004. As a result of this agreement, the company had an income tax benefit of about $16 million in continuing operations. This equates to a benefit of about $0.08 per diluted share which was included in adjusted EPS. 

 

Some of the issues and revised tax calculations related to discontinued operations. This resulted in a net tax benefit to discontinued operations of about $60 million or $0.30 per diluted share.

 

In the first quarter of 2011, there was a fire which completely destroyed our largest presort facility in Dallas, Texas. Less than 5 months after the fire, we began operating at a new location in Dallas, and in August the new site reached operational efficiency levels comparable with the original site. As a result of the fire, we recognized losses in the first half of the year equal to about $.05 per share. In the third quarter, we received net reimbursements from our insurance carriers for about $15 million or $0.05 per diluted share. The reimbursement was included in adjusted EPS for the quarter. These reimbursements fully offset the losses from the first 2 quarters of the year; therefore on a year-to-date basis the impact to EPS is neutral. 

 

In the third quarter we had total restructuring and asset impairment charges of $0.11 per diluted share. About $0.07 per diluted share related directly to our Strategic Transformation Initiatives and $0.04 per diluted share was for the write-down of certain intangible assets related to our International Mail Services business within our Mail Services business segment.

 

In the third quarter we recorded an after-tax goodwill impairment charge of about $0.15 per diluted share related to our International Mail Services business. The goodwill charge was based on the recent underperformance of this business and deterioration in the near-term outlook for the business resulting from a decline in international mail and package volume and an increasingly competitive environment.

 

During the quarter we sold leveraged lease assets in Canada for Cdn$106 million.   The transaction generated a pre-tax book loss of about $7 million, which was more than offset by a favorable tax benefit of about $34 million. This resulted in net income of about $27 million or $0.13 per diluted share.

 

Excluding all the puts and takes in the third quarter, our underlying adjusted EPS was $0.56. This compared with underlying adjusted EPS in the third quarter of last year of $0.52, excluding an unusual $0.03 benefit in that period. This result was a year-over-year increase of 8%.