Pitney Bowes Reports Q2 2014 Revenue of $958M, Up 1 Percent on a Reported Basis
STAMFORD, CT—July 30, 2014—Pitney Bowes today reported financial results for the second quarter 2014.
"We are pleased with our second quarter financial results, which are consistent with our long-term strategic direction," said Marc B. Lautenbach, president and CEO, Pitney Bowes. "Our Digital Commerce business performed very well, delivering 27 percent revenue growth, while profitability in our core mailing businesses continued to improve."
He continued "Our performance through the first six months continues to substantiate the strategy we detailed 15 months ago, and further validates our long-term economic model. We remain ahead of schedule in our multi-year journey to transform Pitney Bowes and are confident in our ability to deliver against our objectives. As a result, we are increasing our 2014 guidance for both revenue and adjusted earnings per share."
Second Quarter 2014 Results
Revenue in the second quarter totaled $958 million, which was growth of 1 percent on a reported basis and flat on a constant currency basis. On a reported basis, revenue for the quarter benefited from 27 percent growth in the Digital Commerce Solutions segment. Revenue in the Small and Medium Business (SMB) Solutions group declined 3 percent, primarily resulting from an acceleration in the implementation of the channel shift strategy. The Enterprise Business Solutions revenue declined 8 percent when compared to the prior year, which included revenue from large deals in the Production Mail segment.
Adjusted earnings per diluted share from continuing operations for the second quarter 2014 were $0.46 compared with $0.46 for the second quarter 2013, which included $0.05 per share of non-recurring tax benefits. Excluding the tax benefits in the prior year, adjusted earnings per share this year increased 11 percent versus the prior year.
Second quarter earnings per diluted share from continuing operations, on a Generally Accepted Accounting Principles (GAAP) basis were $0.43. GAAP earnings per diluted share from continuing operations included a restructuring charge of $0.03 per share associated with the previously announced cost reduction plans.
GAAP earnings per diluted share of $0.46 included income from discontinued operations of $0.03 per share:
Free Cash Flow Results
Free cash flow for the quarter was $162 million, while on a GAAP basis the Company generated $175 million in cash from operations. In comparison to the prior year, free cash flow benefited from the timing of tax payments and growth in bank reserve deposits. During the quarter, the Company used $47 million of cash for dividends and $15 million for restructuring payments.
Business Segment Reporting
The Company's business segment reporting reflects the clients served in each market and the way it manages these segments. The reporting segment groups are: Small & Medium Business (SMB) Solutions group; Enterprise Business Solutions group; and the Digital Commerce Solutions segment.
The Small and Medium Business (SMB) Solutions group offers mailing equipment, financing, services and supplies for small and medium businesses to efficiently create mail and evidence postage. This group includes the North America Mailing and International Mailing segments. North America Mailing includes the operations of U.S. and Canada Mailing. International Mailing includes all other SMB operations around the world.
The Enterprise Business Solutions group provides mailing equipment and services for large enterprise clients to process mail, including sortation services to qualify large mail volumes for postal worksharing discounts. This group includes the global Production Mail and Presort Services segments.
The Digital Commerce Solutions segment leverages digital and mobile channels that make the Company's clients' customer-facing functions more effective. This segment includes software, marketing services, a digital document exchange, shipping and ecommerce solutions.
SMB Solutions Group:
Within the SMB Solutions Group:
The North America Mailing business accelerated the implementation of the SMB go-to-market strategy, resulting in lower equipment sales revenue in the first two months of the quarter. Results in the month of June, however, were back on trend. Recurring revenue streams declined at a lesser rate than prior year, supporting the Company's long-term stabilization objective, and benefited from continued growth in supplies revenue.
As a result of the accelerated go-to-market implementation and lower marketing spend than the previous year, EBIT margin improved during the quarter.
The modest revenue decline, on a constant currency basis, in International Mailing resulted from lower equipment sales in Europe. However, as a result of the stabilizing installed equipment base in prior periods, the segment continues to experience an improvement in year-over-year trend for recurring revenue streams. EBIT margin improved versus the prior year due to cost reduction initiatives, including the go-to-market implementation.
Enterprise Business Solutions Group:
Within the Enterprise Business Solutions Group:
The Production Mail revenue comparison this quarter reflected the impact of several large inserting and production print equipment installations in the second quarter of the prior year. However, recurring revenue continued to benefit from an increase in supplies revenue related to growth in the production printer installed base. EBIT margin was impacted by the lower revenue and the related margin contribution.
Presort Services revenue benefited from ongoing improved qualificationof mail for presort discounts. EBIT margin improved versus the prior year due to lower facility costs and improved operational productivity.
Digital Commerce Solutions
Digital Commerce Solutions revenue benefited primarily from continued strong growth in the Company's ecommerce solutions for cross-border package delivery. The Company also experienced improved revenue growth in the other major elements of the Digital Commerce Solutions segment, including software, shipping solutions and marketing services. Software revenue benefited from license sales in the business applications vertical market. EBIT and EBIT margin reflect the benefit of revenue growth, partially offset by continued investments in ecommerce technology and infrastructure. EBIT margin was also impacted by investment in software channel specialization and increased research and development spend.
This guidance discusses future results which are inherently subject to unforeseen risks and developments. As such, discussions about the business outlook should be read in the context of an uncertain future, as well as the risk factors identified in the safe harbor language at the end of this release and as more fully outlined in the Company's 2013 Form 10-K Annual Report and other reports filed with the Securities and Exchange Commission.
Based on results year-to-date and the outlook for the remainder of the year, the Company is increasing annual guidance for revenue growth and adjusted earnings per share from continuing operations and narrowing the range for GAAP earnings per share from continuing operations. The Company is reaffirming annual guidance for free cash flow.
The Company now expects:
- Revenue to be in the range of one to three percent growth when compared to the prior year versus the one percent decline to two percent growth range previously expected. Guidance excludes the impacts of currency and reflects the expected ongoing stabilization of the mail-related businesses, as well as continued growth in Digital Commerce Solutions;
- Adjusted earnings per share from continuing operations to be in the range of $1.80 to $1.90 versus the range of $1.75 to $1.90 previously expected. Guidance reflects the operational performance year-to-date; the increased revenue outlook; and the timing of investment in solutions and infrastructure, such as ERP;
- GAAP earnings per share from continuing operations to be in the range of $1.55 to $1.65 versus the range of $1.53 to $1.68 previously expected. Guidance reflects the incremental $0.03 per share charge for restructuring costs this quarter, which now total $0.06 per share year-to date and $0.19 per share of debt extinguishment costs in the first quarter.
The Company still expects:
- Free cash flow to be in the range of $475 million to $575 million.
This guidance excludes any further actions that are under consideration by the Company to streamline its operations and further reduce its cost structure.
About Pitney Bowes
Pitney Bowes provides technology solutions for small, mid-size and large firms that help them connect with customers to build loyalty and grow revenue. Many of the company's solutions are delivered on open platforms to best organize, analyze and apply both public and proprietary data to two-way customer communications. Pitney Bowes includes direct mail, transactional mail and call center communications in its solution mix along with digital channel messaging for the Web, email and mobile applications.