Pitney Bowes Announces Third Quarter Results
STAMFORD, Conn., Oct. 23 /PRNewswire-FirstCall/ -- Pitney Bowes Inc. (NYSE: PBI) today reported third quarter 2006 financial results.
For the third quarter 2006, revenue increased eight percent to $1.43 billion and income from continuing operations also rose eight percent to $144 million or $.64 per diluted share versus $.57 per diluted share for the prior year. This was a 12 percent increase in earnings per share over the prior year.
During the quarter, the company recorded an after-tax charge of $4 million or $.02 per diluted share as part of its previously announced restructuring program.
Excluding the impact of the restructuring charges in both periods, adjusted diluted earnings per share from continuing operations increased nine percent from $.61 in the prior year to $.66 this quarter. This was in line with the company's guidance of $.65 to $.67 per diluted share.
The company's Chairman and CEO Michael J. Critelli, noted, "This quarter we continued to enhance the strength and resiliency of our business model as we invested in growth opportunities, while improving operating efficiency. Our confidence in the sustainability of our results was underscored during the quarter as our revenue and earnings per share were again both within our targeted growth ranges. We believe the company is uniquely positioned to take advantage of the many large and growing opportunities in the mailstream."
Net cash used in operating activities was $68 million during the quarter. The net use of cash during the quarter includes the payment of approximately $238 million of taxes related to the sale of Capital Services and the settlement with the IRS as previously disclosed. Free cash flow was $133 million. Year-to-date the company has generated $390 million of free cash flow.
The company used $19 million to repurchase 440 thousand of its shares during the quarter and has $229 million of remaining authorization for future share repurchases. Year-to-date the company has repurchased $312 million of its shares and plans to buy a total of $350 million to $400 million by year- end.
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 third quarter, Mailstream Solutions revenue increased nine percent to $1.0 billion and earnings before interest and taxes (EBIT) increased four percent to $297 million, when compared with the prior year.
Within Mailstream Solutions:
U.S. Mailing operations had third quarter revenue growth of five percent to $587 million and EBIT growth of three percent to $232 million. Growth in the quarter was driven by supplies and payment solutions as the meter base continued to transition to new digital technology and customers took advantage of our broad range of financial offerings. There was also good growth in the company's shipping solutions that allow businesses to determine the best and most cost effective way to ship packages and documents.
International Mailing revenue grew 17 percent to $253 million while EBIT increased by eight percent to $44 million. International Mailing revenue particularly benefited from growth in mailing systems equipment in the U K driven by the new requirement to pay postage based on the size and shape of the mail piece, as well as weight. Improved performance in Canada also contributed to revenue growth during the quarter. Transitional expenses related to the consolidation and outsourcing of administrative functions adversely affected the growth of International Mailing EBIT. We expect to start seeing the benefits of these initiatives in 2007.
Worldwide revenue for Production Mail grew 15 percent to $146 million and EBIT increased 43 percent to $14 million. In the U.S. revenue growth was favorably affected by continued strong placements of inserting systems and the company's advanced, high-speed metering system. The strong U.S. results were partially offset by lower sales in Europe.
Software revenue increased two percent to $50 million and EBIT declined 18 percent to $8 million. Revenue growth for the quarter was negatively affected by the comparison to the prior year, which included a large contract. EBIT was adversely impacted by investments in sales and marketing to position the business for longer-term growth.
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 five percent to $397 million and EBIT growth of 32 percent to $35 million, versus the prior year.
Within Mailstream Services:
Management Services revenue increased one percent to $263 million for the quarter while EBIT increased 14 percent to $19 million, consistent with the company's strategy to focus on higher value service offerings and administrative cost reductions. The strong improvement in EBIT in the U.S. was partially offset by lower EBIT outside of the U.S.
Mail Services revenue grew nine percent to $91 million and EBIT grew 81 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 32 percent to $43 million and EBIT grew 42 percent to $6 million. Revenue growth benefited from the continued expansion of our marketing services programs.
The company anticipates fourth quarter revenue growth in the range of seven to nine percent, which would result in full year revenue growth in the range of six to seven percent.
The company expects adjusted earnings per share in fourth quarter 2006 in the range of $0.76 to $0.78 and $2.68 to $2.70 for the full year. Earnings per share on a Generally Accepted Accounting Principles (GAAP) basis is expected to be $0.71 to $0.75 for the fourth quarter and $2.49 to $2.53 for the full year. The earnings expectations for fourth quarter and the full year are further summarized as follows:
4Q06 4Q05 Full Year 2006 Full Year 2005 Adjusted EPS $0.76 to $0.78 $0.69 $2.68 to $2.70 $2.46 Restructuring ($0.03 to $0.05) ($0.09) ($0.08 to $0.10) ($0.15) Foundation Contributions N/A N/A N/A ($0.03) Tax Reserve Increase N/A ($0.24) ($0.09) ($0.24) GAAP EPS $0.71 to $0.75 $0.36 $2.49 to $2.53 $2.04
During the fourth quarter, the company expects to record a restructuring charge in the range of $.03 to $0.05 per diluted share, which will complete the charges associated with the restructuring program.
Mr. Critelli added, "The consistency of performance and enhanced visibility of our operating results after the sale of Capital Services allowed us to provide 2007 revenue and earnings guidance during our recent Investor Update meeting in September. This was the earliest we have ever provided guidance for an ensuing year."
The company reconfirmed that in 2007 it expects revenue growth of five to eight percent with earnings per share in the range of $2.90 to $2.98.
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 $5.6 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 October 23, 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 fourth quarter and full year 2006 and full year 2007, and our expected diluted earnings per share for the fourth quarter and for the full year 2006 and full year 2007. 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 September 30, 2006 and 2005, and consolidated balance sheets at September 30, 2006, June 30, 2006, and September 30, 2005, are attached.
Pitney Bowes Inc. Consolidated Statements of Income (Unaudited) (Dollars in thousands, except per share data) Three Months Ended Sept 30, Nine Months Ended Sept 30, 2006 2005 (1) 2006 2005 (1) Revenue from: Equipment sales $337,291 $295,026 $959,683 $883,603 Supplies 84,728 73,165 250,412 222,797 Software 49,979 49,236 139,614 123,291 Rentals 196,219 198,894 590,257 606,029 Financing 185,547 162,810 538,139 488,334 Support services 182,294 172,216 529,399 518,176 Business services 397,273 377,682 1,176,682 1,097,335 Total revenue 1,433,331 1,329,029 4,184,186 3,939,565 Costs and expenses: Cost of equipment sales 173,068 146,147 485,828 443,500 Cost of supplies 26,071 18,105 66,475 54,372 Cost of software 11,044 10,260 32,326 26,787 Cost of rentals 42,231 38,975 128,070 125,261 Cost of support services 104,042 97,574 298,791 290,898 Cost of business services 307,378 299,863 917,285 888,522 Selling, general and administrative 443,426 412,049 1,293,619 1,220,930 Research and development 41,893 40,265 124,409 122,551 Interest, net 51,962 49,421 160,600 136,486 Restructuring charge 6,771 12,918 17,409 23,480 Charitable contribution - - - 10,000 Total costs and expenses 1,207,886 1,125,577 3,524,812 3,342,787 Income from continuing operations before income taxes 225,445 203,452 659,374 596,778 Provision for income taxes 77,565 68,023 247,222 200,243 Minority interest 3,653 2,410 9,814 6,914 Income from continuing operations 144,227 133,019 402,338 389,621 Discontinued operations 4,393 6,789 (456,264) 30,420 Net income (loss) $148,620 $139,808 $(53,926) $420,041 Basic earnings per share Continuing operations $0.65 $0.58 $1.80 $1.70 Discontinued operations 0.02 0.03 (2.05) 0.13 Net income (loss) $0.67 $0.61 $(0.24) $1.83 Diluted earnings per share Continuing operations $0.64 $0.57 $1.78 $1.67 Discontinued operations 0.02 0.03 (2.02) 0.13 Net income (loss) $0.66 $0.60 $(0.24) $1.80 Average common and potential common shares outstanding 224,082,673 231,466,231 225,848,482 232,718,298 (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.
Pitney Bowes Inc. Consolidated Balance Sheets (Unaudited) (Dollars in thousands, except per share data) Assets 09/30/06 6/30/06 09/30/05 (1) Current assets: Cash and cash equivalents $202,865 $196,315 $294,527 Short-term investments, at cost which approximates market 830,711 81,504 50,703 Accounts receivable, less allowances: 09/06 $46,470 06/06 $46,856 09/05 $47,726 674,267 660,092 637,054 Finance receivables, less allowances: 09/06 $44,693 06/06 $46,435 09/05 $63,950 1,325,764 1,285,907 1,354,119 Inventories 244,523 243,225 228,708 Other current assets and prepayments 239,940 225,588 214,087 Assets of discontinued operations - 1,218,435 - Total current assets 3,518,070 3,911,066 2,779,198 Property, plant and equipment, net 614,817 621,627 626,737 Rental property and equipment, net 491,777 480,942 1,015,875 Property leased under capital leases, net 2,427 2,396 3,667 Long-term finance receivables, less allowances: 09/06 $39,140 06/06 $37,540 09/05 $77,162 1,522,162 1,511,722 1,771,356 Investment in leveraged leases 255,993 255,724 1,464,218 Goodwill 1,788,081 1,753,812 1,623,505 Intangible assets, net 378,279 375,826 360,585 Other assets 849,333 799,506 874,646 Total assets $9,420,939 $9,712,621 $10,519,787 Liabilities and stockholders' equity Current liabilities: Accounts payable and accrued liabilities $1,568,610 $1,478,114 $1,465,538 Income taxes payable 1,007,700 220,503 135,684 Notes payable and current portion of long-term obligations 1,007,712 707,050 962,504 Advance billings 466,511 491,856 467,522 Liabilities of discontinued operations - 1,448,121 - Total current liabilities 4,050,533 4,345,644 3,031,248 Deferred taxes on income 487,657 527,538 1,725,108 Long-term debt 3,348,990 3,363,665 3,689,759 Other noncurrent liabilities 266,631 270,901 331,642 Total liabilities 8,153,811 8,507,748 8,777,757 Preferred stockholders' equity in a subsidiary company 310,000 310,000 310,000 Stockholders' equity: Cumulative preferred stock, $50 par value, 4% convertible 12 17 17 Cumulative preference stock, no par value, $2.12 convertible 1,092 1,105 1,160 Common stock, $1 par value 323,338 323,338 323,338 Capital in excess of par value 227,440 229,745 215,232 Retained earnings 4,056,278 3,978,614 4,299,121 Accumulated other comprehensive income 163,406 181,521 118,121 Treasury stock, at cost (3,814,438) (3,819,467) (3,524,959) Total stockholders' equity 957,128 894,873 1,432,030 Total liabilities and stockholders' equity $9,420,939 $9,712,621 $10,519,787 (1) Prior period amounts have been reclassified to conform with the current year presentation. Pitney Bowes Inc. Revenue and EBIT Business Segments September 30, 2006 (Unaudited) (Dollars in thousands) % 2006 2005 (2) Change Third Quarter Revenue U.S. Mailing $587,226 $558,901 5% International Mailing 252,641 216,254 17% Production Mail 146,212 126,956 15% Software 49,979 49,236 2% Mailstream Solutions 1,036,058 951,347 9% Management Services 263,229 261,535 1% Mail Services 91,067 83,610 9% Marketing Services 42,977 32,537 32% Mailstream Services 397,273 377,682 5% Total Revenue $1,433,331 $1,329,029 8% EBIT (1) U.S. Mailing $232,337 $225,387 3% International Mailing 43,843 40,741 8% Production Mail 13,668 9,525 43% Software 7,566 9,259 (18%) Mailstream Solutions 297,414 284,912 4% Management Services 18,976 16,627 14% Mail Services 9,444 5,232 81% Marketing Services 6,087 4,291 42% Mailstream Services 34,507 26,150 32% Total EBIT $331,921 $311,062 7% Unallocated amounts: Interest, net (51,962) (49,421) Corporate expense (47,743) (45,271) Restructuring charge (6,771) (12,918) Income before income taxes $225,445 $203,452 (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 September 30, 2006 (Unaudited) (Dollars in thousands) % 2006 2005 (2) Change Year to Date Revenue U.S. Mailing $1,729,983 $1,670,784 4% International Mailing 741,639 676,421 10% Production Mail 396,268 371,734 7% Software 139,614 123,291 13% Mailstream Solutions 3,007,504 2,842,230 6% Management Services 798,280 805,008 (1%) Mail Services 275,914 247,525 11% Marketing Services 102,488 44,802 129% Mailstream Services 1,176,682 1,097,335 7% Total Revenue $4,184,186 $3,939,565 6% EBIT (1) U.S. Mailing $697,816 $669,160 4% International Mailing 131,565 134,160 (2%) Production Mail 32,512 20,094 62% Software 17,183 15,822 9% Mailstream Solutions 879,076 839,236 5% Management Services 61,367 48,622 26% Mail Services 30,100 12,579 139% Marketing Services 11,803 6,557 80% Mailstream Services 103,270 67,758 52% Total EBIT $982,346 $906,994 8% Unallocated amounts: Interest, net (160,600) (136,486) Corporate expense (144,963) (140,250) Restructuring charge (17,409) (23,480) Other expense - (10,000) Income before income taxes $659,374 $596,778 (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 Sept 30, Nine months ended Sept 30, 2006 2005 2006 2005 GAAP income from continuing operations after income taxes, as reported $144,227 $133,019 $402,338 $389,621 Restructuring charge 4,332 8,268 11,141 15,934 Tax settlement - - 20,000 - Contributions to charitable foundations - - - 6,100 Income from continuing operations after income taxes, as adjusted $148,559 $141,287 $433,479 $411,655 GAAP diluted earnings per share from continuing operations, as reported $0.64 $0.57 $1.78 $1.67 Restructuring charge 0.02 0.04 0.05 0.07 Tax settlement - - 0.09 - Contributions to charitable foundations - - - 0.03 Diluted earnings per share from continuing operations, as adjusted $0.66 $0.61 $1.92 $1.77 GAAP net cash provided by operating activities, as reported $(67,634) $216,202 $328,710 $425,735 Capital expenditures (81,430) (67,766) (243,858) (215,446) Reserve account deposits 10,390 100 10,390 (9,100) Restructuring payments and discontinued operations 33,045 (105) 56,437 (9,634) Contributions to charitable foundations - - - 10,000 IRS/ Capital Services tax payment 238,500 238,500 IRS bond payment - - - 200,000 Free cash flow, as adjusted $132,871 $148,431 $390,179 $401,555
Note: The sum of the earnings per share amounts may not equal the totals above due to rounding.
Editorial - Sheryl Y. Battles VP, Corp. Communications 203/351-6808
SOURCE: Pitney Bowes Inc.
CONTACT: Editorial - Sheryl Y. Battles, VP, Corp. Communications,
+1-203-351-6808; Financial - Charles F. McBride, VP, Investor Relations,
Web site: http://www.pb.com/