Pitney Bowes (PBI) Q3 Earnings Top Estimates, Revenues Up Y/Y

Pitney Bowes Inc. (NYSE:PBI) delivered third-quarter 2018 adjusted earnings of 27 cents per share that beat the Zacks Consensus Estimate by a couple of cents but decreased 18.2% year over year.

Revenues increased 14% year over year to $836.9 million. Excluding favorable foreign currency exchange impact of $4 million, revenues increased 13.5% to $832.8 million. This marks the fifth consecutive year-over-year growth in revenues.

Shares of the company increased around 19%, yesterday, driven by better-than-expected earnings results and an encouraging fiscal 2018 earnings guidance.

Segment Details

Commerce services (43% of total revenues) surged 59% from the year-ago quarter to $358 million. While Global Ecommerce revenues soared almost 119% to $233 million, Presort Services increased 5% to $125 million.

Global Ecommerce revenues benefited from 10% revenue growth (on a pro forma basis) in Newgistics on the back of strong performance in parcel and fulfillment volumes. Notably, Global Ecommerce revenues grew 19% 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 owing to increased volumes of mail from big clients’ limited growth.

SMB Business solutions (48% of revenues) declined 4% year over year (down 3% after adjusted for currency) to $399 million. North America Mailing revenues declined 2% to $314 million. Moreover, International Mailing revenues also fell 9% to $85 million due to declining equipment sales. This can be attributed to weakness across the U.K. and France. However, it was marginally offset by growth in Japan and Australia.

Software solutions (9% of revenues) decreased 19% year over year both on reported basis and after adjusted for currency to $79 million, primarily attributable to lower license revenues owing to decline across location intelligence and customer information management.

Operating Details

In the third quarter, adjusted EBITDA inched up 0.7% from the year-ago quarter to $148.1 million. Adjusted EBITDA margin contracted 220 basis points (bps) on a year-over-year basis to 17.8%.

Commerce services EBITDA increased 6% from the year-ago quarter to $25.1 million. SMB Business solutions EBITDA rose 10% year over year to $151.5 million. Software solutions EBITDA slumped 71% year over year to $6 million.

Segment EBIT decreased 5.3% from the year-ago quarter to $137.5 million. Segment Commerce services EBIT declined 69% from the year-ago quarter to $3.1 million.

Global Ecommerce reported a loss of almost $14.3 million compared with a loss of nearly $9.6 million in the year-ago quarter. Presort Services EBIT declined owing to higher labor and transportation costs.

SMB Business solutions EBIT increased 12% year over year to $130.9 million.

Software solutions EBIT decreased 81% year over year to $3.5 million.

Adjusted EBIT margin contracted 250 bps to 11.7%.

Balance Sheet & Cash Flow

As of Sep 30, 2018, cash and cash equivalents (including short term investments) were $815.2 million as compared with $745.6 million at the end of the previous quarter.

Long-term debt (including current portion) was $3.27 billion, down from $3.57 billion at the end of previous quarter.

Cash flow from operations was $116 million, while free cash flow was $94 million.

Pitney Bowes paid dividend worth $35 million to shareholders and incurred $12 million under restructuring payments.

Guidance

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% to 15% over 2017.

Adjusted earnings are envisioned between $1.15 and $1.30 per share. The Zacks Consensus Estimate is pegged at $1.16 per share.

Free cash flow is anticipated between $300 million and $350 million.

Zacks Rank & Key Picks

Pitney Bowes carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are NetApp, Inc. (NASDAQ:NTAP) , Intel Corporation (NASDAQ:INTC) and Upland Software, Inc. (NASDAQ:UPLD) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NetApp, Intel and Upland Software have a long-term earnings growth rate of 14.1%, 8.4% and 20%, respectively.

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