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Pitney Bowes (PBI) Q2 Earnings Top Estimates, Revenues Up Y/Y

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Pitney Bowes Inc. (PBI - Free Report) delivered second-quarter 2018 adjusted earnings of 26 cents per share that beat the Zacks Consensus Estimate by a penny but decreased 7.1% year over year.

Revenues increased 17.9% year over year to $861.4 million. Excluding favorable foreign currency exchange impact of $7.7 million, revenues increased 16.9% to $853.8 million. This marks the fourth consecutive year-over-year growth in revenues.

On Jul 2, 2018, Pitney Bowes announced that it has concluded the divestiture of Production Mail and its supporting software to Platinum Equity for $361 million. The agreement was signed in the reported quarter. The company has received $316 million in proceeds.

Pitney Bowes intends to utilize a major portion of net proceeds to redeem March 2019 notes worth $300 million, which will be concluded on Aug 2, 2018.

Segment Details

Commerce services (42% of total revenues) surged 69.9% from the year-ago quarter to $361.8 million. While Global Ecommerce revenues soared almost 153% to $239.1 million, Presort Services inched up 3.6% to $122.7 million.

Global Ecommerce revenues benefited from 10% revenue growth (on a pro forma basis) in Newgistics driven by strong performance in parcel and fulfillment volumes. Notably, Global Ecommerce revenues grew 18% year over year, excluding Newgistics.

Presort Services revenues improved due to increased volumes of First Class mail along with Bound & Packet Mail and Flats processed. However, lower revenue per piece primarily due to increased volumes of mail from big clients’ limited growth.

SMB Business solutions (47.4% of revenues) declined 6.5% year over year (down 8% after adjusted for currency) to $407.9 million. North America Mailing revenues declined 7.7% to $314.6 million. Moreover, International Mailing revenues also declined 2.2% to $93.4 million due to declining equipment sales. This can be attributed to weakness across the U.K. and Italy. However, it was marginally offset by growth in Germany.

Software solutions (10.6% of revenues) increased 13.1% year over year (up 1% after adjusted for currency) to $91.7 million, primarily driven by growth across location intelligence, data and customer information management. Robust execution in both large and small deals also aided growth. Moreover, management noted the shift from license to subscription deals favored revenue growth.

Management is optimistic regarding revenue growth in the indirect channel which came in at nearly 70% compared with the year-ago quarter. Further, the partner channel is aiding the company win new deals.

Notably, Pitney Bowes reported Production Mail under discontinued operations.

Operating Details

In the second quarter, segment EBITDA inched up3.8% from the year-ago quarter to $199.5 million. Segment EBITDA margin contracted 310 basis points (bps) on a year-over-year basis to 23.2%.

Commerce services EBITDA dipped 2.4% from the year-ago quarter to $28.7 million. SMB Business solutions EBITDA declined 3.5% year over year to $150 million. Software solutions EBITDA soared 182.1% year over year to $20.8 million.

Segment EBIT decreased 1.1% from the year-ago quarter to $153.4 million. Segment EBIT margin contracted 340 bps on a year-over-year basis to 17.8%.

Commerce services EBIT plunged 56.9% from the year-ago quarter to $6.6 million.

Global Ecommerce reported a loss of almost $6 million compared with a loss of nearly $4 million in the year-ago quarter. The loss can primarily be attributed to higher investments on market growth opportunities and operational excellence initiatives. Presort Services EBIT declined owing to higher labor and transportation costs.

SMB Business solutions EBIT declined 4.8% year over year to $128.4 million.

Software solutions EBIT soared 262.1% year over year to $18.4 million.

Adjusted EBIT margin contracted 170 bps to 12.4%.

Balance Sheet & Cash Flow

As of Jun 30, 2018, cash and cash equivalents (including short term investments) were $745.6 million as compared with $775.5 million at the end of the previous quarter.

Long-term debt (including current portion) was $3.57 billion, down from $3.58 billion at the end of previous quarter.

Cash flow from operations was $92 million, while free cash flow was $30 million.

Management noted that the year-over-year increase in cash flow by $22 million was influenced by timing of accounts payable as well as accrued liabilities. Moreover, lower tax payments, marginally offset by higher capital expenditures, contributed to the reported increase.

Pitney Bowes paid dividend worth $35 million to shareholders and incurred $12 million under restructuring payments.

Pitney Bowes Inc. Price, Consensus and EPS Surprise

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

Guidance

Pitney Bowes reaffirmed guidance for fiscal 2018.

For 2018, Pitney Bowes continues to expectrevenues (after adjusted for foreign currency) to increase in the range of 11-15% over 2017.

Adjusted earnings are envisioned between $1.15 and $1.30 per share. The Zacks Consensus Estimate is pegged at $1.18 per share.

Free cash flow is anticipated between $300 million and $350 million.

Zacks Rank & Key Picks

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

Mellanox , Microsoft (MSFT - Free Report) and Intel (INTC - Free Report) are a few stocks worth considering in the broader technology sector, 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 Mellanox, Microsoft and Intel are pegged at 15%, 12.3% and 8.4%, respectively.

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