Pitney Bowes Growth Hurt By Restructuring, Demand Woes

We have issued an updated research report on Pitney Bowes Inc. (NYSE:PBI) on May 30, 2016. Pitney Bowes is grappling with declining top-line growth as it exits its direct operations in Mexico, South Africa and five markets in Asia.

The company is witnessing softness in its North American Mailing business as well as a decline in recurring revenue streams, which are hurting the International mailing business. Its production mail business has also been a drag due to fewer equipment installations on account of unfavorable timing of deal closures.

It has also been incurring higher operating and marketing expenses, which have proven to be a major drag on earnings in recent times. Meanwhile, the planned ERP implementation in the U.S. is driving operating expenses while aggressive advertising and marketing strategies are also proving to be a challenge. Also, deteriorating market conditions in the technology industry is impacting the company’s software business materially.

Pitney Bowes is planning to exit low-margin countries and focus on core geographic regions to aid growth and slowly reap synergies. The implementation of the new ERP program is expected to slash Pitney Bowes’ administrative expenses in the second half of 2016, which in turn should drive margins. However, incremental marketing expenses related to the new advertising campaign can prove to be a drag.

Earlier this year, Pitney Bowes acquired Enroute Systems Corporation, a cloud-based, software-as-a-service enterprise retail and fulfillment solutions company, in order to fortify its shipping logistics portfolio.The deal will help Pitney Bowes enhance the shopping experience for clients across channels by integrating a range of physical and digital processes in the fulfillment management chain.

Moreover, the company launched the Clarity solutions suite that will utilize the power of Industrial Internet to transform the production mail industry. Also, the company announced that its EngageOne Video solutions are to be deployed by American Family Insurance and the financial services and technology company – The Bancorp. Bancorp announced that it will leverage Pitney Bowes’ EngageOne Video interactive video solution in order to deliver a distinctive educational resource for clients in the company’s Institutional Banking practice.

Further, the company’s North American Mailing business in the U.S. is witnessing fast recovery on account of go-to-market strategies and this bodes well for the segment’s growth prospects.

However, currency headwinds continue to pose a major threat to Pitney’s financial performance in the coming quarters. During first-quarter 2016, adverse currency movements hurt the company’s revenues by 1%.

Regarding estimate revisions, analysts have kept mum on this Zacks Rank #4 (Sell) stock, considering the ongoing broader market concerns. Hence, over the last seven days, the Zacks Consensus Estimate for 2016 and 2017 remained flat at $1.81 and $2.11, respectively.

Other Stocks to Consider

Some better-ranked stocks in the broader computer & technology sector include Key Tronic Corp. (NASDAQ:KTCC) , Internap Corporation (NASDAQ:INAP) and Zix Corporation (NASDAQ:ZIXI) . All three stocks carry a Zacks Rank #2 (Buy).