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Pitney Bowes (PBI) Misses Q4 Earnings, Reiterates Guidance

Pitney Bowes Inc. PBI reported third-quarter 2016 adjusted earnings from continuing operations of 44 cents per share, which missed the Zacks Consensus Estimate of 47 cents by 6.4%.However, on a year-over-year basis, adjusted earnings improved 2.3%.

The bottom-line improvement is attributable to lower tax rate during the quarter. However, a rise in total cost & expenses, as well as poor top-line performance restricted earnings performance to a great extent.

Inside the Headlines

Total revenue in the quarter was $839.0 million, down 3.5% year over year on a reported basis. Also, revenues fell 2%, when adjusted for both the impact of currency and market exits.

Poor top-line performance during the quarter under review was largely attributable to foreign currency headwinds. Also, an exit from direct operations in Mexico, South Africa and five markets in Asia aggravated the decline in revenues. Furthermore, weak sales across all three segments of the company added to Pitney Bowes' woes.

As for the segments, on a reported basis, Small and Medium Business ("SMB") Solutions revenues slipped 7% year over year to $426 million. Softness in North American Mailing business (down 7%) and International Mailing Business (down 9%) were attributable to soft equipment sales. Also, recurring revenue streams decline in both the segments worsened the fall.

Enterprise Business Solutions ("EBS") revenues inched up1% over year at $220 million. This segment's production mail business grew5%on account of higher sorter, inserter and print equipment sales. However, few lower margin deals hampered Presort Services revenues (down 2%), thus offsetting the growth to some extent.

The Digital Commerce Solutions reported 1% year-over-year fall in sales to $193 million. A fall in sales from Software solutions (down 9%) more than offset a rise in sales from global e-commerce business (up 8%), thereby driving an overall decline. Lower Customer Information Management and Location Intelligence license revenues acted as a growth dampener for the Software Solutions segment.

However, the global e-commerce business continued on its usual growth trajectory, mainly driven by the Borderfree acquisition. In addition, robust outbound U.S. package shipments proved to be a major growth driver for the segment.

Liquidity and Cash Flow

Exiting the quarter on Sep 30, 2016, free cash flow was $119.4 million compared with $130.9 million as of Sep 30, 2015.

As of Sep 30, 2016, the company's cash and cash equivalents totaled $992.1 million compared with $650.6 million at the end of Dec 31, 2016. Long-term debt as of Sep 30, 2016, was $2,831.7 million, up from $2,489.6 million as of Dec 31, 2016.

Guidance

Concurrent with the earnings release, Pitney Bowes has reiterated its guidance. The company forecasts adjusted earnings in the range of $1.75-$1.82. Revenues are now projected to decline in the range of 1-3%.

Pitney Bowes is bullish about the prospects in the fourth quarter on account of the initiatives that were taken earlier. The company anticipates that implementation of the enterprise business platform, new product introductions and consist enhancement of the channel strategy will act as key growth catalysts for the upcoming quarter.

PITNEY BOWES IN Price, Consensus and EPS Surprise

PITNEY BOWES IN Price, Consensus and EPS Surprise | PITNEY BOWES IN Quote

Our Take

Pitney Bowes reported dismal third-quarter results. Despite taking multiple measures pertaining to software business transformation, the company has been unable to generate a tangible positive impact on its software business. Also, foreign currency fluctuations and sluggish global economic conditions pose as significant headwinds. Moreover, a rise in the company's operating and marketing expenses are likely to put pressure on margins of this Zacks Rank #4 (Sell) company in the near term.

Despite these negatives, Pitney Bowes' steady transformation process over the past three years to create long-term flexibility for investment reinstates hope. Also, the company's strategic collaborations and acquisitions, diligent business pruning and focus on improving operational efficiency bode well for long-term growth.

Stocks to Consider

Some better-ranked stocks in the sector include Adobe Systems Inc., ADBE , InterDigital, Inc. IDCC and Cisco Systems, Inc. CSCO . All three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Adobe Systems is a leading player in the computer software space. The company has a striking earnings surprise history over the trailing four quarters, having beaten estimates all through, for an average beat of 5.6%.

InterDigital develops and markets advanced digital wireless telecommunications systems, using proprietary technologies for voice and data communications. The company has an excellent earnings surprise history over the trailing four quarters, beating estimates all through, with a robust average positive surprise of 30.0%.

Avid Technology develop, markets, sells and supports a wide range of software and systems for creating and manipulating digital media content. The company has a whopping average positive surprise of 124% over the trailing four quarters.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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