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Pitney Bowes Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 5, 2009 07:38PM
Pitney Bowes Inc. (PBI) filed Quarterly Report for the period ended 2009-06-30.
Highlight of Business Operations:
For the second quarter, revenue decreased 13% to $1.38 billion due to continuing challenging global economic conditions and the negative impact of foreign currency translation, which negatively impacted revenue growth by 5%. Acquisitions positively impacted revenue growth by less than 1%.
U.S. Mailings revenue decreased 8% primarily due to fewer placements of mailing equipment as customers continued to delay purchases of new equipment and extended leases on existing equipment due to the economic conditions. Revenue continues to be adversely affected by the ongoing changing mix to more fully featured smaller systems. Additionally, revenue continues to be impacted by an increase in lease renewals, which has a positive impact on profit margins but negatively impacts revenue in the current period. U.S. Mailings EBIT decreased 12% principally due to lower financing revenue, meter rentals, and supplies sales because of lower business activity levels over the last year. International Mailing revenue decreased 28%, with 14% of this decline driven by the unfavorable impact of foreign currency translation. The remaining decrease was due to weak economic conditions internationally which appear to be lagging the U.S, particularly in Canada, Asia and certain key markets in Europe. This has resulted in ongoing deferred capital purchases for mailing equipment and delays by customers in adding new services. International Mailings EBIT declined 47% to $27.1 million, primarily driven by our Canada and European operations, changes in currency which increased product costs and the unfavorable comparison to the settlement of a legal matter in 2008 for $7.5 million, which positively impacted EBIT in the prior year. Revenue for Production Mail decreased 13%, partly due to the unfavorable impact of foreign currency translation of 6%, and also as a result of lower equipment sales in the U.S., France, and Asia Pacific as economic uncertainty continues to delay large-ticket capital expenditures for many large enterprises worldwide. As a result, customers are keeping existing equipment longer than usual, which resulted in an increase in service revenue. Production Mails EBIT decreased 32% driven by lower revenues and a shift in product mix to lower margin products. This was partially offset by an improved service margin due to prior year cost reduction initiatives and price increases on longer-service equipment. Softwares revenue decreased 19%, with 7% of this decline driven by the unfavorable impact of foreign currency translation. The remaining decrease is principally due to consolidation in the financial services industry and slowness in the retail sector worldwide which continues to adversely impact the sales and renewal of software licenses. Uncertainty surrounding the economy has resulted in many large multi-national organizations changing their approval policies for capital expenditures, which has lengthened the sales cycle. Softwares EBIT decreased 17%. Ongoing cost reduction measures helped offset the pressure on margin due to lower revenue and a mix of lower margin software sales.
Management Services revenue decreased 12%, of which 4% was driven by the unfavorable impact of foreign currency translation. The segments revenue was also adversely affected by lower business activity and decreased print and transaction volumes throughout the U.S. and Europe. Management Services EBIT decreased by 11% primarily due to lower transaction volumes worldwide. In the U.S., EBIT as a percentage of revenue remained at 10% despite lower business activity and a decline in transaction volumes, which resulted in lower revenue. Outside the U.S., the companys high exposure to the weak financial services industry in the U.K., and overall reduced print volumes throughout most of Europe resulted in an overall decline in the segments EBIT. Mail Services revenue grew 3% mostly due to acquisitions which contributed 3% and was partly offset by the unfavorable impact of foreign currency translation of 1%. Expansion of the customer base and continued growth in mail volume processed drove the increase in revenue for the quarter. Mail Services EBIT increased by 36% driven by the integration of Mail Services sites acquired last year and ongoing cost reduction actions taken by the business. Marketing Services revenue decreased 17%, mostly due to the impact of lower revenues associated with the areas of marketing campaign management and loyalty programs. Marketing Services EBIT decreased 11%, however ongoing cost reduction initiatives resulted in EBIT margin improvement in 2009.
Business services revenue decreased 9% compared to the prior year due to lower transaction volumes at Management Services and Marketing Services. The unfavorable impact of foreign currency translation of 3% was partly offset by the positive impact of acquisitions which contributed 1%.
Cost of equipment sales as a percentage of revenue was 54.3% in the second quarter of 2009 compared with 53.4% in the prior year, primarily due to the unfavorable mix of lower margin equipment sales in Production Mail, which were partly offset by a favorable mix of higher margin equipment sales in International Mailing.
Selling, general and administrative (SG&A) expenses as a percentage of revenue was 30.8% in the second quarter of 2009 compared with 31.3% in the prior year. SG&A expense declined $73.4 million, primarily as a result of our cost reduction initiatives which contributed 7% and the positive impact of foreign currency translation of 5%.
NWQ Managers of NWQ Investment Management Co, Robert Olstein of Olstein Financial Alert Fund, Dodge & Cox, John Rogers of ARIEL CAPITAL MANAGEMENT LLC.