Incorporated in Delaware in 1920, Pitney Bowes (PBI) is a global provider of mail processing equipment and integrated mail solutions. In 2013, Pitney Bowes slashed its dividend in half and embarked on a reorganization that re-aligned the business into three 
business segments. As of the end of 2013, Pitney Bowes was organized as follows:
- Small and Medium Business Solutions (61% of 2013 revenue) — provides a full range of mailing equipment, postage meter and supporting services and supplies, shipping management and related financing solutions. Broken into a North American and International business
- Enterprise Business Solutions (24% of 2013 revenue) — is made up of two businesses, Production Mail and Presort Services. Production Mail is a worldwide provider of high-speed, high-volume production mail systems. The Presort Service business is a national outsource provider of mail presort services.
- Digital Commerce Solutions (15% of 2013 revenues) — provides a range of software, communication, data management, e-commerce and targeted direct mail solutions through a variety of platforms including software licensees, platforms, on-demand and software as a service.
As part of the reorganization Pitney Bowes’ hopes to stabilize the mail business, achieve operational excellence and drive growth within the digital commerce solutions segment. Pitney Bowes is the market leader in mail processing but the market continues to face a slow and steady decline among increasing competition as business and marketing communication move to other methods.
PBI – Earnings Summary
In January, Pitney Bowes announced positive fourth quarter 2013 results but full-year 2013 sales decline as fruits of Pitney Bowes restructuring efforts were just beginning to take effect. 2013 fourth quarter sales of $1.03 billion and adjusted earnings per-share of 53 cents beat Analyst estimates launching Pitney Bowes stock price from $21 to over $25 per share.
The first quarter showed continued progress with revenues growing 3% to $937 million and EPS growing 15% to 42 cents. Revenue continued to improve in the second quarter increasing 1% to $958 million with EPS of 46 cents, in-line with Analyst estimates. Revenue continued to benefit from strong performance within the Digital Commerce Solutions segment with sales increasing 27%, offsetting declines in the other segments.
PBI – Increasing Margins Shows Restructuring is Working
Pitney Bowes traditional mail business is not declining as fast as initially thought and appears to have leveled off as the North American declines are being offset by international gains. Cost cutting and operational efficiency initiatives are bearing fruit as operating margins have been improving from 16.2% in 2012 and 2013 to over 17% in the first quarter and 16.7% in the second quarter.
Pitney Bowes stock is down against the S&P 500 for the year due to a recent downturn in the market over fears of the economy, but this is giving investors a chance to buy in and reap substantial rewards in 2015 and beyond. Pitney Bowe stock has a dividend yield of 3.2% and a current price to earnings ratio of 21.47. Analysts have a 12-month consensus stock price of $32, compared to a current trading range in the low 20s.
With increasing earnings and sales growth, I would look for Pitney Bowes to reinstate its higher dividend rate in the next year or two as the dividend payout ratio drops below 50% on a consistent basis. Pitney Bowes is a stock with a good dividend yield in the short term and possible significant price appreciation in the mid-term. I would consider Pitney Bowes a long-term hold for income investors interested in PBI stock.
As of this writing, Kenneth Fick did not hold a position in any of the aforementioned securities. Write him at kfick@piercethefog.com or follow him on his blog at www.piercethefog.com.
