Pitney Bowes Takes the Plunge

Deteriorating business results in a huge dividend cut, earnings-day stock selloff

   

I was sorry to hear about Pitney Bowes’ (NYSE:PBI) weak first-quarter financial performance and resulting dividend cut this morning, nor the subsequent 15% hit to PBI shares.

But I wasn’t surprised.

I’ve been all over my ex-employer during the past year. (But for the record: I have no hard feelings at all about my time there.) In early January, I tagged Pitney Bowes as a company that would not survive through 2020; near the end of the month, I cautioned against optimism based on one good quarter (Q4 2012) that led to a pop in the stock. In March, I again urged caution.

Now, here we are, staring at some hard-to-ignore realities in the form of year-over-year results:

  • Revenues dropped 4% to $1.17 billion.
  • GAAP earnings plunged 58% to 33 cents per share.
  • Management Services revenue slid 2.3% to $225 million.
  • North American Mailing revenue fell 6.7% to $430 million.

Pitney Bowes is not quite in free fall, but virtually every segment within its operation showed year-over-year declines on both the top and bottom lines.

The trickle-down impacted cash flow, which fell to $107 million from $186 million — a big factor behind a halving of the company’s quarterly dividend, to 18.75 cents per share (still providing a 5.5% yield).

As one would imagine, that cleanly knocks PBI off our list of Dependable Dividend Stocks, which recognizes companies that have consistently increased dividends for at least 25 consecutive years.

PBI management provides a little light at the end of the tunnel. It says it expects full-year revenues to fall anywhere between flat and 3% growth, and earnings should fall in a range of $1.85 to $2 per share — both lining up with Wall Street forecasts.

But even then, it’s clear Pitney is in real trouble.

Mail volumes continue to drop, albeit at a slower clip; that’s still big trouble for PBI. Not only is mail the bell-cow for revenue, but it remains the highest-margin business. Pitney acknowledges EBIT declined more than 13% in the segment as a result of the slowdown, but also acknowledges a decline in the margins of new equipment installations that take the place of older leased machines.

Furthermore, no other segments appear able to take up the slack on either the top or bottom lines. The Mail Service division’s revenues improved just more than 4% year-over-year, but at $119 million, it won’t the needle. Meanwhile the division’s EBIT dropped 43%, primarily due to start-up costs associated with its e-commerce product.

On the cashflow side, PBI is basically sucking wind, even after closing on the issuance of $425 million in 30-year bonds that replaced an existing $405 million bond. In fact, the swap hurt: PBI will pay out $10 million more in interest this year due to the interest rate differential in the instruments.

In the face of declining revenues, margins, earnings and cash flow, and a substantially smaller dividend, I do have one piece of good news: PBI shares still are roughly 30% in the black since bottoming out in late December 2012.

Which means that some of you can still cut bait now with some gains intact.

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.


Article printed from InvestorPlace Media, http://investorplace.com/2013/04/pitney-bowespbi/.

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