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Pitney Bowes (PBI) Q3 Earnings Miss Estimates, Sales Up Y/Y

Pitney Bowes Inc. PBI reported adjusted earnings of 33 cents per share, missing the Zacks Consensus Estimate of 43 cents in third-quarter 2017. Further, adjusted earnings fell 25% on a year-over-year basis.

On a GAAP basis, the company reported earnings per share of 31 cents, down 11.4% compared with the year-ago figure. A rise in total costs, along with cost of investment in new business areas proved to be a drag on the earnings performance.

Inside the Headlines

Total revenues in the quarter was $842,820 million, up 0.5% year over year on a reported basis. However, revenues were flat, when adjusted for currency impact.

As for the segments, on a reported basis, Small and Medium Business (“SMB”) Solutions revenues dipped 7.4% year over year to $ 414 million. The tepid performance was due to softness in the North American Mailing business (down 8.6%) and International Mailing Business (down 3%). Lower recurring revenue streams and lower sales in the top of the line products led to the lackluster performance of the North American Mailing business. Additionally, decline in recurring revenues proved to be a drag on the International Mailing Business.

Enterprise Business Solutions (“EBS”) revenues increased 1.4% year over year to $223.5 million. Decent performance form Presort Services (up 4%), partially offset by the production mail business (down 1.9%) drove the top-line growth of this segment. Higher print equipment sales bolstered performance of the production mail business. Higher support services revenues also proved conducive to the growth of this segment.

Digital Commerce Solutions reported 19% year-over-year growth in sales to $205.6 million, on the back of strong Global e-commerce (up 28%) as well as Software Solutions businesses (up 12%). Impressive performance in all cross-border geographies and growth in domestic shipping acted as tailwinds for the Global e-commerce business. Growth in the Software Solutions business was primarily driven by higher license revenue, mainly in Location Intelligence and Customer Information Management.

Pitney Bowes Inc. Price, Consensus and EPS Surprise

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

Liquidity and Cash Flow

Exiting the quarter on Sep 30, 2017, free cash flow was $108.9 million compared with $119.9 million as of Sep 30, 2016.

As of Sep 30, 2017, the company’s cash and cash equivalents totaled $1,697 million compared with $764.5 million at the end of Dec 31, 2016. Long-term debt as of Sep 30, 2017, was $3,562.7 million, down from $2,750.4 million as of Dec 31, 2016.

Guidance

The company tweaked guidance for full-year 2017. It expects earnings per share to lie in the range of $1.38-$1.46, compared with the earlier guided range of $1.70-$1.78. Revenues, on a reported basis, are expected to grow in the range of 3-5% year over year compared with the previous guidance of flat to 1% growth.

Pitney Bowes believes that new products and digital capabilities of SMB, expansion of the Presort Services network and robust e-commerce volume growth will act as major catalysts, stoking top-line growth for full-year 2017. Moreover, the company’s focus on operational excellence will help it trim costs and expenses, consequently supplementing growth.

Our Take

Pitney Bowes’ concerted efforts to transform business have started to show results as evident from growth across most business lines. The transformation initiatives and constant introduction of new products have also provided a boost to performance. This apart, the company’s prolonged effort to enhance and optimize new enterprise business platform also bode well for the company.

Moreover, the company’s Global e-commerce business is proving to be one of the strongest profit churners, and is anticipated to boost top-line growth in the upcoming quarters as well. In less than five years, Global e-commerce has grown from $20 million business to a worth of over $400 million. The company also anticipates segment’s growth rate to accelerate going forward, in light of growth in overall retail volumes and customer wins.

However, continued softness in the mailing business is likely to affect Pitney Bowes’ growth momentum for the quarter under review. Lower recurring supplies revenues are expected to adversely affect the mailing business in the upcoming quarter. Additionally, currency fluctuation remains a headwind.

Pitney Bowes currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks worth considering in the same space include Adobe Systems Incorporated ADBE, Analog Devices, Inc. ADI and Advanced Micro Devices, Inc. AMD. While Adobe Systems sports a Zacks Rank #1 (Strong Buy), Analog Devices and Advanced Micro Devices carry Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Adobe Systems has a decent earnings surprise history, surpassing estimates in the trailing four quarters with an average beat of 7.8%.

Analog Devices has an impressive earnings surprise history, exceeding estimates in the trailing four quarters with an average beat of 19.1%.

Advanced Micro Devices has an impressive earnings surprise history, exceeding estimates in the trailing four quarters with an average beat of 31.7%.

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