by Marc Bastow | March 14, 2013 12:52 pm
I’m not sure if I’m just losing my touch, or if the investment world is indeed going loony.
My erstwhile employer Pitney Bowes (NYSE:PBI) — which I sold out of late last year — continues to enjoy a 2013 resurgence that has seen shares gain more than 40% year-to-date. This return has been sweetened by a February dividend payment that represented a 2.27% yield — not annually, but just for the quarter!
If you’re lucky to have enjoyed all that, take your gains and run.
Long-term, the postage meter and mailing business — upon which every Pitney hope still hangs — is an ailing dinosaur as letters and bills continue to migrate online. The business probably won’t ever die out completely, but it’s in perpetual decline.
And if you look past some recent window dressing and see what’s behind that curtain, you’ll see there’s little going on that will truly turn Pitney Bowes’ business around.
For instance, Pitney announced another layoff — this time around 140 workers in an Indiana warehouse facility. That’ll help the bottom line a little, but it’s sure as heck not growth.
And then there’s news of PBI’s tender offer to take $402 million in medium-term debt due between 2014 and 2016 off the books in favor of … well, pretty much the same amount of debt, just pushed out to 2043. That’s right, 30 years out.
Click to Enlarge It’s possible the maturities would’ve been hard to pay given the shrinking free cash flow problems — a direct result of shrinking net income and increased capital expenditures at PBI.
Fitch Ratings did assign a BBB- rating to the issue based on the ability to service the new debt through PBI’s “liquidity position” on Dec. 31, 2012. Of course, Fitch also couched its ratings with a boatload of caveats (read more here), my favorite of which is “The Outlook is Negative.”
Meanwhile, the company saw revenue downturns in every one of its seven business segments in 2012. Indeed, the only factor working toward Pitney’s improved earnings per share figure is its buyback program, which cost more than $200 million — that PBI doesn’t really have — in 2012. And unless Pitney plans on filling in for the USPS on Saturdays starting this fall, there’s little reason to think this arrow will point north again soon.
A long time ago, I worked for a guy who introduced me to the term “cash burn,” and said once that gets out of control, it’s just a matter of time before a company can’t function. PBI has some money in the bank — around $1 billion last I looked — and a sweet undrawn $1 billion credit line to bolster up its commercial paper program. So I suppose that counts as a “liquidity position.”
But check PBI’s next few 10-Q statements and see if it starts to draw on the line. If it does, watch those line banks start to cringe, and watch bondholders start to make noise about their sinking prices. Then keep an eye on the folks in the CFO’s office, because they’ll really have to start crunching numbers to find a way out — that’ll mean shrinking the business further, or — the real killer — slashing the dividend.
Again, the recent share rebound has been great for those in the stock, so don’t look a gift horse in the mouth.
But a look at simply what the company does, or how that business fleshes out into Pitney’s financials, should make it clear there’s little reason to be optimistic long-term.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he did not hold a position in any of the aforementioned securities.
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