Pitney Bowes (PBI) Q1 Earnings Miss, Revenues Down Y/Y

Pitney Bowes Inc. PBI reported first-quarter 2019 adjusted earnings of 12 cents per share lagging the Zacks Consensus Estimate by 9 cents. Moreover, the figure declined 57.1% year over year.

The year-over-year decline in earnings can be attributed to reduction in revenues, primarily due to weakness in Presort business and lower equipment sales.

Total revenues declined 3.1% year over year to $868.4 million. Excluding favorable foreign currency exchange impact of approximately $10 million, revenues declined 2% to $878.4 million.

Notably, in the reported quarter, Pitney Bowes inked a deal to divest its SMB businesses based across six Europe countries — Sweden, Denmark, Norway, Finland, Italy and Switzerland — to BAVARIA Industries Group AG in a bid to enhance go-to-market strategy. This limited revenue growth by almost $6 million. Considering market exit impact, revenues (at cc) declined 1% year over year to $872.4 million.

Following the first-quarter earnings miss and trimmed 2019 guidance, shares of the company were down around 24.5%, yesterday. Notably, Pitney Bowes stock has fallen 37% in the past year compared with industry’s decline of 20.3%.

Quarter in Detail

Commerce services (46.2% of total revenues) grew 5% from the year-ago quarter (up 6% after adjusted for currency) to $401.1 million. While Global Ecommerce revenues improved 8% to $266.3 million, Presort Services of $134.8 million remained almost flat year over year.

Global Ecommerce revenues benefited from strong performance in parcel and shipping volumes. However, reduction in cross border volumes limited growth.

Presort Services revenues improved on the back of increased volumes of Flats processed, First Class mail and Standard Class mail. However, shift in mix toward big clients led to lower revenue per piece, which negatively impacted growth.

SMB Business solutions (45.4% of revenues) declined 10% year over year (down 9% after adjusted for currency) to almost $394 million. Revenues declined 7% when adjusted for both currency and exits from select Europe-based markets.

North America Mailing revenues declined 7% to $315.5 million, owing to sluggish equipment sales.

Moreover, International Mailing revenues fell 20% to $78.5 million owing to declining equipment sales. This can be attributed to weakness across France and Germany. However, it was marginally offset by growth in Japan and the U.K.

Software solutions (8.4% of revenues) declined 4% year over year (down 2% after adjusted for currency) to $73.3 million. Reduction in license revenues impacted results. However, improving SaaS revenues, and increase in smaller deal wins were other catalysts which limited the decline in revenues.

Pitney Bowes Inc. Price, Consensus and EPS Surprise

Pitney Bowes Inc. Price, Consensus and EPS Surprise | Pitney Bowes Inc. Quote

Operating Details

In the first quarter, adjusted EBITDA declined 30.2% from the year-ago quarter to $108.2 million. Adjusted EBITDA margin contracted 520 bps on a year-over-year basis to 12.4%.

Segment EBITDA decreased 20% from the year-ago quarter to $159.3 million. Commerce services EBITDA declined 40% from the year-ago quarter to $23.8 million. SMB Business solutions EBITDA fell 16% year over year to $131.3 million. Software solutions EBITDA declined 12% year over year to $4.2 million.

Segment EBIT decreased 25% from the year-ago quarter to $124.6 million.

Segment Commerce services EBIT plummeted 98% from the year-ago quarter to almost $0.5 million. Global Ecommerce reported a loss of almost $14.6 million compared with a loss of nearly $7.7 million in the year-ago quarter, on account of business mix including lower margin services. Presort Services EBIT declined 44% to $15.1 million owing to higher labor and transportation costs, and client mix including big customers lowering margins and revenue per piece.

SMB Business solutions EBIT fell 15% year over year to $122.4 million. Margins were impacted by lower equipment sales.

Software solutions EBIT plummeted 32% year over year to $1.7 million owing to lower license revenues.

Adjusted EBIT margin contracted 500 bps to 13.8%.

Balance Sheet & Cash Flow

As of Mar 31, 2019, cash and cash equivalents (including short term investments) were $904.3 million as compared with $926.7 million at the end of the previous quarter.

Long-term debt (including current portion) was $3.255 billion compared with $3.266 billion reported at the end of previous quarter.

Net cash from operations was $69.7 million compared with $102.7 million in the previous quarter. Free cash flow came in at $31.5 million compared with $153 million in the prior quarter.

In the reported quarter, Pitney Bowes returned $48 million to shareholders, which includes dividend payments worth $9 million and repurchase of 5.6 million shares worth $39 million.

The company incurred expenses of $8 million under restructuring payments and capital expenditures worth $29 million in the quarter.

Pitney Bowes Inc. Revenue (Quarterly)

Pitney Bowes Inc. Revenue (Quarterly) | Pitney Bowes Inc. Quote

Guidance Bleak

For 2019, the company trimmed outlook, primarily owing to dismal performance of Presort Services business.

Pitney Bowes now projects revenues (after adjusted for foreign currency) to increase in the range of 1-3% over 2018, compared with growth rates estimated in the range of 1-4% earlier.

Adjusted earnings are envisioned between 90 cents and $1.05 per share, compared with prior guided range of $1.05-$1.20. The Zacks Consensus Estimate currently pegged at $1.14 per share.

Free cash flow is now anticipated between $200 million and $250 million, compared with earlier predicted range of $225-$275 million.

Zacks Rank & Stocks to Consider

Pitney Bowes currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader technology sector are Cadence Design Systems, Inc. (CDNS), Avid Technology, Inc. (AVID) and Synopsys, Inc. (SNPS), each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Cadence Design, Avid Technology and Synopsys is pegged at 12%, 10% and 10%, respectively.

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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.


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