Third quarter gloom for Pitney Bowes beneath one-off benefits
A number of one-off benefits to the Pitney Bowes bottom line has helped improve profitability at the US mail services giant in the third quarter of the year. But below the surface, actual business activities have slipped, with the company suggesting that continuing media coverage about the decline of the mail industry could be taking an impact on investor confidence going forward.
The company has warned its overall 2011 revenue will likely be worse than previously forecast, and is now predicting a 3% to 4% drop in revenues this year as a whole.
Releasing its results for the three months up to the end of September, Pitney Bowes said its insurers had finally paid up for February’s major fire at its Dallas mail sorting plant, it settled a long-running reassessment of its tax arrangements with the Internal Revenue Service and benefited from the sale of lease assets in Canada.
Nevertheless, while shareholders could celebrate a 94% hike in earnings per diluted share, to $0.83 for the quarter compared to the same period in 2010, overall revenues in the three months were down 3% to $1.3bn.
Pitney Bowes said the falling revenue was largely hit by declines in its mail equipment and business services divisions as its customers took a cautious approach to the “uncertain” global economy.
The picture was slightly brightened by a 15% growth in the company’s software revenues, but chairman Murray D Martin suggested that confidence was a major problem within his company’s customer base at the moment.
“They have become more cautious and are delaying making capital and lease commitments,” he said of his customers.
“We also believe that some of the conflicting perceptions and media reports about the mailing industry are having an adverse impact on parts of the business.”
Business segments
Pitney Bowes, which is in the process of positioning itself as a customer communications company, rather than merely a mail services company, saw declines in the revenues of almost all of its divisions apart from software in the latest three months.
As clients postponed equipment purchases and upgrades, Pitney Bowes saw declines in equipment revenues from both its small and medium-size business segment (revenue down 4% to $653m, earnings before tax down 3% to $202m) and enterprise segment (revenue down 3% to $646m, earnings up 6% to $75m).
Difficulties were particularly apparent within the company’s North American business, as its international results benefited from some favourable currency movement.
Pitney Bowes’ mail services division saw a 3% drop in revenues to $143m as fewer international mail shipments were made and as impacts from the Dallas mail plant fire continued, but the company did point out that its US network was processing higher volumes of total mail, largely thanks to growth in standard mail. A doubling of earnings to $35m included a $15m payout from insurance companies following the Dallas fire.
The company said a good performance in its management services unit was concealed beneath one-off costs from expected account terminations over the past 12 months, while lower demand for print and communication services in Europe also contributed to the unit’s 4% decline in revenue to $235m, and 22% drop in earnings to $18m.
Meanwhile, software sales grew 15% year-on-year to $109m, with strong business in the Americas and Asia-Pacific regions, with earnings more than doubling to $17m for the quarter.
Martin noted his company’s investments in new customer communications management solutions, including the cloud-based pbSmart range for smaller businesses, and the “good progress” in the development of its digital mail service, Volly.
On the latter point, he said companies producing bills and statements for more than 4,000 companies and brands were now signed up to use Volly, once it is rolled out to consumers in 2012.
“We continue to make critical investments in growth areas for the future, such as software, Volly and cloud-based solutions,” said the Pitney Bowes chairman.
