Pitney Bowes Beats on Q1 Earnings - Analyst Blog

Pitney Bowes Inc. PBI reported results for first-quarter 2014. The company reported non-GAAP earnings (excluding one-time items) of 42 cents a share for the quarter surpassing the Zacks Consensus Estimate of 39 cents. Quarterly earnings also increased 15% year over year.

Total Revenue

Total revenue for the first quarter of 2014 was $937 million, up 3% from $909.4 million in the prior-year quarter. The top line primarily benefited from a strong performance of the company's Digital Commerce Solutions and a modest performance of the Enterprise Business Solutions, which were partially offset by Small and Medium Business SMB Solutions segment.

Segment Performance

Small and Medium Business Solutions segment sales declined 1% year over year to $534.3 million. The decline was attributable to a 2% year-over-year dip in North American Mailing revenues, which were at $381.0 million. Revenues in the International Mailing segment were flat year over year at $153 million.

The company's go-to-market strategy proved to be a positive move for its North American Mailing business in the U.S. but was offset by the prevailing sluggishness in its recurring revenues businesses. The International Mailing business benefited from growth in supplies and financing revenues but was offset by sluggish rentals revenues from France.

Enterprise Business Solutions segment sales increased 1% year over year to $221.7 million. The segment's Presort Services revenues increased 5% year over year to $116.5 million. However, the increase was offset by a 4% year-over-year decline in revenues in the company's worldwide production mail business. The company's Presort Services revenues benefited from the strong growth in its First Class mail services, but one-time costs of restructuring its facilities proved to be a drag.

The Digital Commerce Solutions segment reported revenues of $181.5 million, reflecting a robust 23% year-over-year increase. Revenue primarily benefited from continued strong growth in the company's E-commerce solutions for cross-border package delivery and development in services-related software revenues. Growth in the company's software license and marketing services businesses also contributed to the segment's performance.

Expenses

The company's selling, general and administrative (SG&A) expense remained flat year over year at $351 million in the quarter. Research and Development (R&D) expense was $26.2 million, a decline from $29.2 million in the prior-year quarter. Income from continuing operations of the company was $46.5 million in the quarter, compared with $64.1 million in the prior-year period. Lower income was attributable to restructuring charges as well as higher cost of supplies, software and business services.

Balance Sheet

Exiting the quarter, cash and cash equivalents were $903.3 million, down from $907.8 million as of Dec 31, 2013. However, long-term debt decreased to $3.1 billion as of Mar 31, 2014 from $3.3 billion as of Dec 31, 2013. Shareholders' equity was $189.7 million compared with the prior-year figure of $188.4 million. Free cash flow for the quarter was $138 million while cash from operating activities was $106 million.

Business Update

During the quarter, the company divested its DIS business that contributed 1 cent per share to GAAP earnings, recorded in the income from discontinued operations.

Outlook

Concurrent with the earnings release, Pitney provided an outlook for fiscal 2014.

For 2014, revenue growth (excluding the impacts of currency translations) is expected to be in the range of -1% to 2%.

Non-GAAP earnings for 2014 are expected in the range of $1.75 to $1.90, while free cash flow for 2014 is expected to be in the range of $475 million to $575 million.

Pitney Bowes currently holds a Zacks Rank #3 (Hold). Some better-ranked stocks in the office automation and equipment sector include Lexmark International Inc. LXK, Canon Inc. CAJ and Hewlett-Packard Co. HPQ. All three stocks carry a Zacks Rank #2 (Buy).