A month has gone by since the last earnings report for Pitney Bowes (PBI - Free Report) . Shares have lost about 10.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Pitney Bowes due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Pitney Bowes 2Q18 Earnings Surpass Estimates, Revenues Up Y/Y
Pitney Bowes Inc. 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.
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.
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 reaffirmed guidance for fiscal 2018.
For 2018, Pitney Bowes continues to expect revenues (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. Free cash flow is anticipated between $300 million and $350 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -13.79% due to these changes.
Currently, Pitney Bowes has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is equally suitable for value and momentum investors while growth investors may want to look elsewhere.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Pitney Bowes has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.