What’s Next for Pitney Bowes Inc. After a Q4 Earnings Miss (PBI)?

Pitney Bowes Inc. (PBI) reported fourth-quarter 2016 adjusted earnings of 53 cents per share, which missed the Zacks Consensus Estimate of 58 cents per shareby 8.6%.

However, on a year-over-year basis, adjusted earnings improved 10.4%.

For full-year 2016, the company’s adjusted earnings per share fell 4.0% to $1.68 compared to the year-ago tally. Notably, the company’s adjusted earnings fell short of the guided range of $1.75–$1.82 per share.

On a GAAP basis, the company incurred net loss per share of 44 cents, comparing unfavorably with the year-ago net earnings of 41 cents. Factors including goodwill impairment charge, restructuring and asset impairment charge, and redemption of the preferred stock of the company’s PBIH subsidiary hurt the bottom line.

Inside the PBI Headlines

Total revenue in the quarter was $887.1 million, down 5.3% year over year on a reported basis. In addition, revenues were down 4%, when adjusted for the impact of currency and market exits.

Poor top-line performance during the quarter under review was largely attributable to foreign currency headwinds. Also, absence of revenues from the previously exited operations in Mexico, South Africa and five markets in Asia aggravated the decline in revenues. Furthermore, weak sales across all three segments of the company added to Pitney Bowes’ woes.

For full-year 2016, the company’s sales totaled $3.4 billion, a fall of 5% on a reported basis and 4% when adjusted for both the impact of currency and market exits, compared to 2015.

As for the segments, on a reported basis, Small and Medium Business (“SMB”) Solutions revenues dipped 7% year over year to $442 million. Softness in North American Mailing business (down 16%) and International Mailing Business (also down 16%) were attributable to the poor performance. Lower financing and supplies revenues, and weakness in equipment sales led to dismal performance of the North American Mailing business.

Additionally, decline in recurring revenues proved to be a drag on International Mailing Business.

EnterpriseBusiness Solutions (“EBS”) revenues were down 5% year over year at $233 million. Robust performance of the production mail business (up 11 %) was more than offset by the fall of Presort Services revenues (down 6%). Lower “First Class” mail and lower volume of average revenue per piece of mail processed, proved to be a drag on the performance of Presort Services.

The Digital Commerce Solutions reported 2% year-over-year decline in sales to $212 million. A fall in sales from Software solutions (down 10%) more than offset a rise in sales from the global e-commerce business (up 12%), thereby leading to an overall decline. The Software solutions sales took a beating on account of anticipated large deals which did not come to fruition during the quarter.

PBI’s Liquidity and Cash Flow are Solid 

Exiting the quarter on Dec 31, 2016, free cash flow was $164.2 million compared with $156.9 million as of Dec 31, 2015.

As of Dec 31, 2016, the company’s cash and cash equivalents totaled $771.0 million compared with $650.6 million at the end of Dec 31, 2015. Long-term debt as of Dec 31, 2016, was $2,750.4 million, up from $2,489.6 million as of Dec 31, 2015.

Pitney Bowes Inc. Price, Consensus and EPS Surprise

Pitney Bowes Inc. Price, Consensus and EPS Surprise | Pitney Bowes Inc. Quote

Lukewarm Guidance is a Cause for Concern

The company offered its guidance for full-year 2017.It slashed its 2017 adjusted earnings per share guidance to $1.70–$1.85 from the previous guided range of $1.80–$1.95. Revenues, on a reported basis, are expected to be in the range of a 2% decline to 1% growth, when compared to 2016. Further, the company revised its free cash flow to be in the range of $400–$460 million, compared to the earlier guided range of $415–$485 million.

On a positive note, Pitney Bowes believes that new products and digital capabilities of SMB, expansion of the Presort Services network and robust ecommerce volume growth will act as major catalysts, stoking top-line growth for full-year 2017. Moreover, its focus on operational excellence will help it trim cost and expense, thus supplementing growth.

Expectedly, fourth-quarter and full-year 2016 results faced the brunt of the sustained weak performance in its software and North American Mailing business. Despite adoption of multiple measures, the company failed to boost profits at the software segment. In addition, an uncertain global economic environment continued to hurt the production mail and software businesses, marring the Zacks Rank #4 (Sell) company’s overall performance.

Entering into 2017, it will be interesting to see whether Pitney Bowes can reap the benefits of its ERP implementation. It seems safe to say, without major developments in its end markets, the company is unlikely to stage a comeback anytime soon.

Other Stocks to Consider

Some better-ranked stocks in the same space include Littelfuse, Inc. (LFUS), Harris Corporation (HRS) and Barracuda Networks Inc (CUDA).

While Littelfuse flaunts a Zacks Rank #1 (Strong Buy), both Harris Corporation and Barracuda Networks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Littelfuse has an average positive earnings surprise of 3.5%, beating estimates thrice in the trailing four quarters.

Harris Corporation has an impressive earnings surprise history for the trailing four quarters, beating estimates all through, with an average positive surprise of 4.2%.

Barracuda Networks company has a striking earnings surprise history. It surpassed estimates in each of the trailing four quarters, with a remarkable average positive surprise of 475%.

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