Pitney Bowes (PBI) Q2 Earnings: Stock Likely To Disappoint?

Pitney Bowes Inc. (NYSE:PBI) is slated to report second-quarter 2016 results before the opening bell on Aug 2.

Last quarter, the company posted a negative surprise of 17.1%. Also, the company missed estimates twice in the past four quarters, resulting in an average negative surprise of 5.9%.

Let's see how things are shaping up for this announcement.

Factors to Consider

Pitney Bowes’ second-quarter 2016 results are expected to face the brunt of the weak performance of its software andNorth American Mailing business. Though the company has adopted multiple measures to boost profits at the software segment, it has not produced tangible results. In addition, an uncertain global economic environment is expected to further hurt the production mail and software businesses, marring the top-line performance.

Moreover, an expected surge in the company’s operating and marketing expenses will weigh on its top and bottom-line performance in the quarter. While the previously planned ERP implementation in the U.S. is expected to raise operating expenses, aggressive advertising and marketing strategies are likely to increase marketing expenses. Benefits of ERP materialization are expected to materialize in the second half of 2016, however, margins will likely be under pressure in the to-be reported quarter.

In addition to this, currency translations have impacted the company’s financials over the past few quarters and are expected to impact earnings and revenues in the upcoming release as well.

Despite these negatives, Pitney Bowes’ steady transformation process over the past three years to create long-term flexibility for investment reinstates hope. In this regard, the company’s decision to exit low-margin countries like Mexico, South Africa and five markets in Asia is expected to drive profitable growth.

Moreover, some of the company’s recently completed acquisitions including Borderfree e-commerce, Real Time Content and EngageOne Video software solution are expected to contribute to top line growth in the to-be-reported quarter. Also, the recently completed buyout of Enroute Systems has fortified the company’s shipping logistics portfolio and is expected to propel growth.

Pitney Bowes launched a number of software solutions this quarter, including a state-of-the-art location intelligence solution; Clarity Solutions Suite, which it co-developed with General Electric Company (NYSE:GE);Single Customer View, among others. These launches will help the company gain traction in its software business. Furthermore, implementation of “go-to-market” strategies in major markets and transition to a new sales model in the mailing business in France is expected to stabilize the company’s SMB business.

Earnings Whispers

Our proven model does not conclusively show that Pitney Bowes will beat earnings estimates in this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP for the company currently stands at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate is 42 cents.

Zacks Rank: Pitney Bowes has a Zacks Rank #4 (Sell). As it is, we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

B2Gold Corp. (NYSE:BTG) has an Earnings ESP of +50.00% and a Zacks Rank #1. The company is expected to release its quarterly results on Aug 4.

Hecla Mining Co. (NYSE:HL) has an Earnings ESP of +66.67% and a Zacks Rank #1. The company will report results on Aug 4.

Harsco Corporation (NYSE:HSC) has an Earnings ESP of +38.46% and a Zacks Rank #1. The company is expected to release earnings results on Aug 4.