Pitney Bowes (PBI) Q1 Earnings Beat, Up Y/Y, View Intact

Pitney Bowes Inc. (NYSE:PBI) beat earnings estimates in first-quarter 2017, marking an end to five quarters of back-to-back misses. The company reported adjusted earnings of 36 cents per share, beating the Zacks Consensus Estimate of 34 cents. Also, on a year-over-year basis, adjusted earnings improved 5.9%.

On a GAAP basis, the company reported earnings per share of 35 cents, up 16.7% compared to the year-ago tally. A fall in total costs, along with lower restructuring and asset impairment charges proved conducive to bottom-line growth.

Inside the Headlines

Total revenue in the quarter was $836.6 million, down 0.9% year over year on a reported basis. However, revenues inched up 0.2%, when adjusted for currency impact.

Foreign currency headwinds, absence of revenues from the previously exited operations, as well as dismal performance of the Small and Medium Business offset stellar growth of the Digital Commerce business.

As for the segments, on a reported basis, Small and Medium Business (“SMB”) Solutions revenues dipped 6% year over year to $449 million. The tepid performance was due to softness in the North American Mailing business (down 4%) and International Mailing Business (down 11%). Lower recurring revenue streams and supplies revenues led to the lackluster performance of the North American Mailing business. Additionally, decline in recurring revenues and poor equipment sales proved to be a drag on the International Mailing Business.

Enterprise Business Solutions (“EBS”) revenues climbed 3% year over year to $222 million. Decent performance of the production mail business (up 2%) and Presort Services (up 4%) drove the top-line growth of this segment. Higher inserter and sorter equipment sales bolstered sales of the production mail business. Higher “Standard Class” and “First Class” mail volumes also proved conducive to the growth of this segment.

Digital Commerce Solutions reported 9% year-over-year growth in sales to $166 million, on the back of strong Global e-commerce business (up 17%). Robust volumes in the UK outbound marketplace and growth in overall retail volumes acted as tailwinds for the Global e-commerce business. After several quarters of decline, Software solutions sales remained flat year over year in the reported quarter.

Liquidity and Cash Flow

Exiting the quarter on Mar 31, 2017, free cash flow was $111.2 million compared with $65.1 million as of Dec 31, 2016.

As of Mar 31, 2017, the company’s cash and cash equivalents totaled $739.6 million compared with $764.5 million at the end of Dec 31, 2016. Long-term debt as of Mar 31, 2017, was $2,499.0 million, down from $2,750.4 million as of Dec 31, 2016.

Guidance

The company reiterated its guidance for full-year 2017. It expects earnings per share to lie in the range of $1.70–$1.85. Revenues, on a reported basis, are anticipated to be in the range of a 2% decline to 1% growth, when compared to 2016. Further, the company reaffirmed its free cash flow for 2017 to be in the $400–$460 million range.

On a positive note, Pitney Bowes believes that new products and digital capabilities of SMB, expansion of the Presort Services network and robust e-commerce volume growth will act as major catalysts, stoking top-line growth for full-year 2017. Moreover, the company’s focus on operational excellence will help it trim costs and expenses, thus supplementing growth.

To Conclude

Pitney Bowes kick started 2017 on a cheerful note with an earnings beat, after a relatively drab 2016 which was marked by a string of misses. After almost half a decade of strategic initiatives, the company’s Software business is finally displaying signs of recovery, adding to Pitney Bowes’ strength. Pitney Bowes anticipates the SMB business to benefit from positive industry trends and strategic product launches.

This apart, consistent growth of the company’s Global e-commerce business is a major positive. Pitney Bowes remains confident that the Global e-commerce segment will continue to drive growth for the upcoming quarters. Despite these positives, an uncertain global economic environment is expected to thwart the production mail and software businesses. Also, currency fluctuations add to this Zacks Rank #3 (Hold) company’s concerns.

Stocks to Consider

Better-ranked stocks in the broader sector include Motorola Solutions, Inc. (NYSE:MSI) , PCTEL, Inc. (NASDAQ:PCTI) and NCR Corporation (NYSE:NCR) . While PC-Tel sports a Zacks Rank #1 (Strong Buy), Motorola and NCR Corp. hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PC-Tel generated three massive beats over the trailing four quarters, for an outstanding average positive surprise of 125%.

Motorola has a striking earnings surprise history for the last four quarters, having beaten estimates all through, for an impressive average beat of 16.4%.

NCR also has an excellent earnings surprise history, with an average beat of 11.0% for the trailing four quarters, beating estimates all through.

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