Pitney Bowes Inc. (NYSE:PBI) reported third quarter 2007 financial results.
Revenue increased 5 percent to $1.5 billion compared with the same period last year and income from continuing operations on a Generally Accepted Accounting Principles (GAAP) basis was $129 million. As discussed in previous quarters, income from continuing operations reflects the alignment of MapInfo’s accounting treatment for software revenue recognition with the company’s policies. In addition, income from continuing operations this quarter included two non-cash adjustments: a $4 million decrease in the company’s deferred taxes primarily due to recent changes in German tax laws, and a $4 million pre-tax impairment of certain intangible assets in the company’s legal solutions business. Excluding these items, adjusted income from continuing operations was $139 million for the quarter.
Adjusted diluted earnings per share from continuing operations was $.63 as compared with $.66 for the same period last year and below the company’s guidance of $.70 to $.74. Earnings per diluted share from continuing operations on a GAAP basis was $.58 as compared with $.64 for the same period last year and below the company’s guidance of $.68 to $.72.
The company generated $290 million in cash from operations during the quarter. Free cash flow was $239 million. The company used $72 million for dividends and $105 million to repurchase 2.3 million of its shares during the quarter. The remaining authorization for future share repurchases is $161 million. Year-to-date the company has generated $550 million in free cash flow and has returned $497 million to shareholders through dividends and share repurchase. The company is raising its guidance for annual free cash flow for 2007 to $625 to $675 million from $550 to $625 million. This reflects lower utilization of cash for finance receivables, working capital, and capital expenditures than originally planned.
Commenting on the quarter, President and CEO Murray D. Martin noted, “Business conditions during the third quarter were much more challenging than we originally anticipated. Our Software and Mail Services segments continued to have very strong results, but their performance was offset by weakness in our U.S. and International Mailing segments as well as in our Management Services segment.”
Mr. Martin noted that the company’s performance during the quarter was negatively affected by four factors. “First, weakness in certain sectors of the economy, such as financial services, is resulting in lower sales of equipment and software as well as lower print and supplies volumes.
Second, the postal rate case in the second quarter was a positive event for U.S. Mailing and helped generate significant incremental sales during that quarter. It is now apparent, however, that more of those sales were shifted from what would have normally occurred in future quarters than we had originally anticipated. Additionally, the benefit from meter migration this quarter was less than we expected.
Third, in International Mailing, delays in postal liberalization across Europe are creating a more difficult environment in the postal sector and are impacting customer purchases. The EBIT margin for International Mailing was adversely impacted by both the lower revenue growth and greater than anticipated expenses associated with our outsourcing contracts for European back office operations.
And finally, at Pitney Bowes Management Services, the benefit from the strong written business in prior quarters was offset by continuation of weak results in legal solutions and delays in government outsourcing contracts.”
