Pitney Bowes Third Quarter 2002 Earnings in Line with Guidance
Revenue grew seven percent to $1.11 billion and income from continuing operations was $146.9 million, which compares with income from continuing operations of $140.2 million in last year's third quarter excluding special items, and $122.1 million including special items.
Commenting on the quarter, Pitney Bowes Chairman and CEO Michael J. Critelli said, "We are pleased with our improved performance this quarter. We achieved positive organic revenue growth in all major business lines: Global Mailing, Management Services and Document Messaging Technologies. In addition, we completed our acquisition of PSI, which will enable us to better serve our customers by helping to reduce cost and speed the delivery of mail. This transaction is an important component of our expansion into the mail stream, and underscores the value of Pitney Bowes products, software and integrated business solutions in helping companies reduce the cost and enhance the efficiency of their communications flow.
"The success of our new product launches is a testament to the strength of the Pitney Bowes brand. Our revolutionary DM series of digital mailing systems featuring Intellilink technology has experienced customer satisfaction unparalleled in our history of new product launches. We will continue to leverage our brand strength to help engineer the flow of communications between posts and carriers and our mutual customers, and the flow of high value communications between large enterprises and their customers," Mr. Critelli continued.
The Global Mailing Segment includes worldwide revenue and related expenses from the sale, rental and financing of mail finishing, mail creation and shipping equipment, related supplies and services, presort mail services, postal payment solutions, small business solutions and software. With the launch of DeliverAbility&153;, the company is adding mail and package tracking and tracing capability at the desktop. In the third quarter, Global Mailing revenue and operating profit both increased ten percent when compared with the prior year. Excluding the revenue from the acquisitions of Secap SA and PSI Group Inc. and the impact of favorable foreign currency, Global Mailing revenue increased four percent. Global Mailing in the U.S. benefited from the placement of new digital mailing systems and improved demand for its mail creation and distribution solutions products.
Outside of the U.S., Global Mailing experienced double-digit revenue growth, supported by improved business trends in the UK and Canada, and revenue from the acquisition of Secap SA. Excluding the revenue from Secap SA and the favorable impact of foreign currency, Global Mailing's international revenue grew about two percent. This revenue growth was achieved despite lower revenue in Germany, where demand for mailing equipment has slowed in a post meter migration environment.
The Enterprise Solutions Segment includes Pitney Bowes Management Services (PBMS) and Document Messaging Technologies (DMT). Revenue from PBMS includes facilities management contracts for advanced mailing, reprographic, document management and other value-added services to large enterprises. Revenue from DMT includes sales, service and financing of high speed, software-enabled production mail systems, sorting equipment, incoming mail systems, electronic statement, billing and payment solutions, and mailing software. The Enterprise Solutions segment reported revenue growth of five percent and operating profit growth of three percent when compared with the prior year.
PBMS reported revenue growth of six percent to $247.4 million when compared with the prior year while operating profit declined 20 percent. PBMS continues to generate strong growth in new written business, but this growth is being partially offset by the continued contraction of large enterprise accounts, especially in the financial services and legal sectors. Operating profit was adversely impacted by the costs associated with acquiring new accounts that have not yet generated a full quarter of revenue as well as investments in product technology and infrastructure, especially in Europe.
DMT reported revenue of $62.4 million for the quarter, an increase of three percent from the prior year, with a greater improvement in operating profit. Worldwide demand for high-speed, software-enabled production mail equipment and mail processing software has remained slow, but appears to be stabilizing. Cost reduction programs initiated earlier in the year resulted in an increase in operating profit over the prior year.
Total Messaging Solutions, the combined results of the Global Mailing and Enterprise Solutions segments, reported an eight percent increase in revenue and a nine percent increase in operating profit.
The Capital Services Segment includes primarily asset- and fee-based income generated by financing or arranging transactions of critical large-ticket customer assets. Revenue for the quarter decreased 24 percent and operating profit decreased 17 percent when compared with the third quarter 2001, which included incremental revenue from asset sales and related fee income. Its operating margins improved due to the decline in interest rate levels.
During the quarter, the company repurchased 2.5 million of its shares outstanding, at a net cost of $89 million. Free cash flow, excluding payments related to special items, was $127 million for the third quarter of 2002. Including payments for special items, free cash flow was $117 million.
The company expects revenue growth for the full year 2002 to be in the range of six to seven percent. Diluted earnings per share from continuing operations are expected to be in the range of 64 to 65 cents for the fourth quarter 2002, and in the range of $2.37 to $2.38 for the full year 2002. The company is continuing its discussions with U.S. Air and has recently begun discussions with United Airlines concerning its leased planes and believes its range of potential exposure for both U.S. Air and United Airlines is still consistent with that disclosed in its last Form 10-Q filing.
Mr. Critelli noted, "As we look to solidify our outlook for 2003, we are evaluating the potential impact of a number of factors. First, we are finalizing plans associated with our growth strategy, which will be presented to our Board of Directors in November. Second, we are reviewing possible actions to reduce our overall exposure in Capital Services to focus exclusively on transactions related to our postal and document-related financing business. Third, we have preliminarily estimated that incremental pension and retiree medical costs for 2003 will be about 12 cents per share. Fourth, we are still evaluating other incremental cost factors such as infrastructure investments, and are continuing to review infrastructure needs. And finally, like most other companies, we are factoring in the risks and opportunities associated with an uncertain economy. We anticipate providing earnings guidance for 2003 as part of our fourth quarter earnings announcement."
Mr. Critelli concluded, "By balancing our short-term and long-term plans, we believe that a combination of on-going cost containment initiatives and continued investment in industry-leading products and services will help us deliver consistently greater shareholder value."
Third quarter 2002 revenue included $592.5 million from sales, up nine percent from $541.9 million in the third quarter of 2001; $374.4 million from rentals and financing, up two percent from $365.7 million; and $147.2 million from support services, up eight percent from $136.8 million. Net income for the period was $146.9 million, or 61 cents per diluted share. Income from continuing operations for the third quarter 2001 was $122.1 million or 49 cents per diluted share which included the following special items: a $10 million pre-tax charge associated with the company's transition to the next generation of networked technology; and an $18 million pre-tax charge related to initiatives associated with a restructuring plan. Excluding these special charges, third quarter 2001 income from continuing operations was $140.2 million, or 57 cents per diluted share and net income was $135.3 million, or 55 cents per diluted share. Third quarter 2001 net income includes a loss of $4.9 million from discontinued operations or two cents per diluted share.
For the nine-month period ended September 30, 2002, revenue was $3.245 billion, up seven percent from $3.032 billion in 2001. Net income for year-to-date 2002 was $419.5 million or $1.73 per diluted share compared to income from continuing operations for the same period of 2001 which, excluding special items, was $416.3 million, or $1.68 per diluted share. Year-to date pre-tax restructuring charges for 2001 totaled approximately $122 million of which $89 million was related to continuing operations. Year-to-date net income for 2001, which also included a net pre-tax gain of $362 million from settling a lawsuit with Hewlett-Packard and a pre-tax charge of $258 million associated with the company's transition to the next generation of networked technology, was $398.2 million or $1.60 per diluted share. The year-to-date net income for 2001 included a loss of $15.7 million from discontinued operations, or approximately six cents per diluted share.
Pitney Bowes senior management will discuss the company's financial results in a conference call today, scheduled for 5 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 www.pitneybowes.com
Pitney Bowes is a $4 billion global provider of integrated mail and document management solutions headquartered in Stamford, Connecticut. The company serves over 2 million businesses of all sizes through direct and dealer operations in more than 130 countries.