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Pitney Bowes Posts Fourth Quarter and Annual Results for 2011
Feb 14, 2012 (Close-Up Media via COMTEX) --
Pitney Bowes Inc. reported fourth quarter and full year 2011 results.
In a release on February 9, the company noted earnings details:
Revenue for the quarter was $1.3 billion, a decline of 6.5 percent compared with the prior year. Currency had no impact on revenue during the quarter. When compared with the fourth quarter 2010, revenue was adversely impacted by lower SMB sales, some deferred large ticket enterprise deals, and continued economic and business uncertainty worldwide. Adjusted earnings per diluted share from continuing operations for the fourth quarter was $0.97 compared with $0.66 for the prior year. Adjusted earnings per share from continuing operations for the quarter included a net benefit of $0.37 per share related to a U.S. income tax settlement. Excluding that tax benefit adjusted earnings per share for the quarter was $0.61. During the quarter, the company and the IRS reached an agreement on the tax treatment of a number of issues, as well as revised tax calculations, related to the IRS examinations of tax years 2005 through 2008. Additionally, during the quarter, the IRS examinations of tax years 2001 through 2007 were concluded, particularly for items related to the company's former Capital Services business. As a result, in the fourth quarter, the company recorded a net tax benefit of $0.37 per share related to continuing operations, and a benefit of $1.04 per share for amounts related to discontinued operations.
On a Generally Accepted Accounting Principles (GAAP) basis, the company reported earnings per diluted share of $1.28 including the tax benefit in discontinued operations for the fourth quarter, compared with $0.31 per diluted share for the prior year. GAAP earnings per diluted share for the quarter also included a $0.31 per share charge for restructuring costs and asset impairments primarily associated with the company's Strategic Transformation initiatives. In addition, there was a non-cash $0.41 per share goodwill impairment charge related to the company's international operations of Pitney Bowes Management Services, because of lower than expected growth, changing print demand, and a weaker economic outlook for European markets.
For the full year, revenue was $5.3 billion, a decline of less than 3 percent when compared with the prior year, and just over a 4 percent decline excluding foreign exchange impacts. Adjusted earnings per diluted share from continuing operations was $2.70 compared with $2.23 for the prior year. Adjusted earnings per diluted share from continuing operations for the year included $0.44 per share related to tax settlements for tax years 2001 through 2008 in the U.S.
GAAP earnings per diluted share was $3.05 for the full year compared with $1.41 for the prior year. GAAP earnings per diluted share for the year included a $0.52 charge for restructuring and asset impairments primarily associated with the company's Strategic Transformation initiatives; non-cash impairment charges to goodwill of $0.56 per share; and a non-cash net tax charge of $0.02 per share associated with out-of-the money stock options that expired during the year. Benefits to GAAP earnings per share for the year included $0.13 per share from the sale of leveraged lease assets in Canada and $1.31 per share net benefit in discontinued operations primarily related to the U.S. tax settlements.
Free cash flow was $215 million for the quarter and $1.03 billion for the year. On a GAAP basis, the company generated $170 million in cash from operations for the quarter and $920 million for the year. Free cash flow for the year, when compared with the prior year, benefited from about $130 million in net tax refunds, primarily associated with the U.S. income tax settlements, and higher net income. Uses of cash for the year included $300 million of dividend payments to common shareholders; $123 million of contributions to the company's pension plans; $107 million of restructuring payments; $100 million to repurchase the company's common shares outstanding; and $50 million of debt reduction.
Commenting on the quarter and the year, Chairman, President and CEO Murray D. Martin noted, "We are pleased that we were able to achieve our original earnings objective and exceed our cash flow target despite a business environment that remained unexpectedly challenging during 2011. Our Strategic Transformation program enabled us to streamline our business processes and improve the way we interact with our customers. Our cost structure is now more variable and efficient, and as a result, we achieved EBIT margin improvement for the year on our adjusted results.
"Despite improvement in our equipment sales in the first half of the year, persistent economic uncertainty worldwide resulted in some of our customers deferring new equipment purchases, and capital investments in the second half of the year. However, our Connect+ digital mailing system continued to sell well on a global basis, and we expect sales of this innovative mailing solution to increase in 2012.
"Our Mail Services employees did a remarkable job recovering from the fire in the beginning of the year that destroyed our largest mail presorting site located in Dallas, Texas. In less than nine months we located and outfitted a new site and resumed revenue growth in our presort business in the fourth quarter. We are now positioned to continue the profitable growth trend in our presort business that we were experiencing before the fire.
"Meanwhile, we continued to invest in future growth opportunities for the business. Our cloud-based family of pbSmartTM products is gaining acceptance among our small and medium sized customers. We are making good progress with Volly, our secure digital mail platform, having now signed on more than 40 large third party mail service providers. These partners produce billions of bills, statements and account communications each year for more than 5,000 companies and consumer brands and they are working with these companies to bring them into Volly. We also have other new and exciting integrated customer communications management solutions that we will be introducing to our larger enterprise customers in 2012.
"Based upon our sound capital structure, significant cash flow, and expected strong cash flow in 2012, our Board of Directors approved an increase in our quarterly dividend for the 30th consecutive year. As we reported last week, the dividend for the first quarter 2012 is $0.375 per common share."
Business Segment Results
The company reports its business segments in two groups based on the customers it primarily serves: Small and Medium Business (SMB) Solutions and Enterprise Business Solutions. The SMB Solutions group consists of the company's global Mailing operations. The company aligns its SMB business segments into North America Mailing and International Mailing to reflect how the business is managed. North America Mailing includes the operations of U.S. Mailing and Canada Mailing. International Mailing includes all other SMB operations around the world. The Enterprise Business Solutions group includes the company's global Production Mail, Software, Management Services, Mail Services and Marketing Services operations.
North America Mailing's overall revenue declined versus the prior year due to lower equipment sales activity. Some customers delayed new equipment purchases and upgrades because of concerns about overall business conditions. Some customers at the end of lease elected instead to retain their existing equipment and, in many cases, enter into lease extensions. Overall revenue was also adversely impacted by lower rental and financing revenue as a result of lower equipment sales in prior periods. During the quarter, however, there continued to be good placements of the company's Connect+ digital mailing system and its cloud-based SendSuite Live shipping system. The segment's decline in rentals revenue also appears to be moderating. The segment had its sixth consecutive quarter of year-over-year EBIT margin improvement. EBIT margin improved by 270 basis points versus the prior year as a result of continued productivity improvements related to the company's Strategic Transformation program, lower credit losses, and ongoing benefits from previous period lease extensions.
There was modest revenue growth in the International Mailing segment during the quarter, and there was no impact due to currency translation. Revenue benefited from increased equipment sales, especially in France and the Nordics. Revenue was adversely impacted by declines in financing, rentals and service due to lower equipment sales in prior periods. However, the rate of decline of these recurring revenue streams continued to improve year-over-year for the third consecutive quarter. The segment had its fourth consecutive quarter of year-over-year EBIT margin improvement, with EBIT margin improving this quarter by 40 basis points versus the prior year. Similar to North America Mailing, International Mailing margins benefited from continued productivity improvements related to the company's Strategic Transformation program, lower credit losses, and ongoing benefits from previous period lease extensions.
Revenue declined during the quarter both from delayed orders and installation of inserting equipment, as some Enterprise customers, especially in the financial services sector, remain cautious about making large capital investment commitments. Production Mail installed additional Intellijet color printers both in the U.S. and in Europe during the quarter, and expects future growth in related supplies and support services revenue streams from this expanding base of high-speed digital color printers. EBIT and EBIT margin declined because of continued investment in Volly and lower revenue. Excluding the Volly investment, margins improved by 180 basis points versus the prior year.
In the Software segment, revenue declined year-over-year for the first time in six quarters, as several large software license contracts that were expected to close in the fourth quarter were delayed past year end. This was particularly the case in the public sector as many organizations globally became more cautious about investing due to economic and business uncertainty. Software revenue for the full year was up 9 percent despite the deferred business at year end, as a result of strong demand and the company's continued transition to annuity-based pricing for selected software solutions. Software EBIT margin was lower during the quarter due to the decline in revenue and the relatively high level of earnings leverage that is typical in a software business.
Management Services revenue declined in the fourth quarter as a result of account contractions and terminations from prior periods. However, the business experienced improving trends in the volume of documents processed. Additionally, it saw an improvement in the level of net new written business for the year. EBIT margin declined as the company continued its investment to deliver integrated high-value customer communications solutions to its customers. The company also experienced pricing pressure on some of its contract renewals.
Mail Services year-over-year revenue declined during the quarter. Revenue at International Mail Services (IMS) declined versus the prior year because of fewer international shipments. Presort revenue grew as it continued to process increasing volumes of Standard Class mail from new and existing customers in the U.S. There is ongoing customer demand for the company's unique nationwide logistics capability to help mailers maximize presort discounts and expedite mail delivery. Mail Services EBIT and EBIT margin increased substantially versus the prior year, partly because of additional insurance reimbursements the company received related to the fire at its Dallas presort facility earlier in the year. Even excluding these insurance reimbursements, Mail Services EBIT margin improved at a double-digit rate versus the prior year, helped by ongoing productivity initiatives and improved network efficiencies.
Marketing Services revenue grew during the quarter versus the prior year because of improved marketing revenue per move and the revenue related to the company's MyMove web offering. EBIT and EBIT margin improved versus the prior year because of revenue growth and an increasing use of the company's MyMove online service to access vendor marketing offerings as an opt-in extension of the online change of address process.
Strategic Transformation Update
During 2011, the company continued to accelerate several of its strategic initiatives to streamline processes and make its cost structure more variable to better leverage changing business conditions. The company initiated its Strategic Transformation program in the fourth quarter of 2009, and it now estimates an annualized run rate of net benefits in excess of $300 million, exceeding the company's most recent expectations of $250 to $300 million in net benefits.
Pre-tax restructuring and asset impairment charges, related to Strategic Transformation, for 2011 were $132 million and since the inception of the program the total pre-tax charges have been about $385 million. These charges exclude asset impairments not related to Strategic Transformation. The company has implemented numerous new systems and processes that will enable it to improve the way it goes to market and interacts with its customers. At the same time, it has made the cost structure more variable so it can react more quickly to changing business and economic conditions. While the company does not anticipate any future material charges related to this program, the company will continue to identify and implement improvements in the way the business operates and take actions to reduce its costs.
2012 Guidance
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.
The company expects 2012 revenue, excluding the impacts of currency, to be in a range of 2 percent growth to a decline of 2 percent as compared to 2011. The company's outlook anticipates improving revenue trends, due in part to a number of initiatives designed to drive new growth opportunities. The guidance reflects a postal and economic environment that is not expected to improve nor deteriorate significantly over the next twelve months.
The company anticipates gradual improvement in equipment sales in 2012 due to the positive outlook for sales of the Connect+ digital mailing system on a global basis, resulting in fewer lease extensions by customers. As equipment sales improve, the company expects moderating declines in recurring revenue streams primarily related to the SMB Solutions Group. The company has previously discussed that lower equipment sales affect financing, rentals and supplies revenue streams. In 2012 the company expects growth across its Enterprise businesses including: continued growth in Software revenue due to increasing global demand for customer communications management software solutions; increased placements of Intellijet color printing systems in Production Mail; continued expansion in Mail Services; and, benefits from a focus on legal, commercial and government sectors in Management Services.
Based on its revenue expectation, the company's 2012 guidance for diluted earnings per share from continuing operations is in the range of $2.05 to $2.25. Included in these earnings expectations are higher costs associated with its pension plans, increased investment in Volly, its secure digital mail system, and a mix shift resulting from faster growing, yet relatively lower margin, enterprise businesses.
The company expects to generate free cash flow for 2012 in the range of $700 million to $800 million. The company expects to invest more cash in finance receivables through higher levels of equipment sales in 2012, which would result in lower free cash flow than in 2011.
In closing, Martin noted, "We are confident that we have taken the right actions to lay the foundation for growing our business and enhancing our value to customers in 2012 and beyond. We will help our SMB customers grow their business and communicate more efficiently with our advanced Connect+ equipment and our SendSuite shipping solutions. The momentum is growing for our new line of cloud-based pbSmart Solutions that help SMB customers use QR codes, email, and direct mail for marketing campaigns, and our pbSmartPostage solution, which recently reached its 10,000th customer in less than 9 months. We also expect improving growth across all our Enterprise businesses. We will continue to invest in innovative new solutions that enable our customers to manage their physical, digital and hybrid communications with their customers."
Pitney Bowes is a provider whose products, services and solutions deliver value within the mailstream and beyond.
More Information:
pitneybowes.com
((Comments on this story may be sent to newsdesk@closeupmedia.com))
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