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Will Pitney Bowes (PBI) Q1 Earnings Be a Disappointment?

Pitney Bowes Inc. PBI is set to report first-quarter 2016 results on May 3. Last quarter, the company posted a negative surprise of 11.1%. Also, the company missed estimates twice in the past four quarters, resulting in an average negative surprise of 2.2%.

Let's see how things are shaping up for this announcement.

Factors to Consider

Pitney Bowes’ first-quarter 2016 results are expected to face the brunt of the weak performance of its software business. Though the company has adopted multiple measures to boost profits at the software segment, it has not produced tangible results. In addition, an uncertain global economic environment is expected to hurt the production mail and software businesses, marring the top-line performance.

Moreover, an expected surge in the company’s operating and marketing expenses will weigh on its top and bottom-line performance in the quarter to be reported. While the previously planned ERP implementation in the U.S. is expected to raise operating expenses, aggressive advertising and marketing strategies are likely to increase marketing expenses. Benefits of ERP materialization are expected to materialize in the second half of 2016 while a rise in marketing expenses throughout first-quarter 2016 is likely to hurt margins.

In addition to this, currency translations have impacted the company’s financials over the past few quarters and are expected to impact earnings and revenues in the upcoming release as well. Especially, strengthening of the U.S. dollar may act as a significant headwind for the company’s e-commerce business by making purchases more expensive and lowering cross-border sales.

Despite these negatives, Pitney Bowes’ steady transformation process over the past three years to create long-term flexibility for investment reinstate hope. In this regard, the company’s decision to exit low-margin countries like Mexico, South Africa and five markets in Asia is expected to drive profitable growth.

Moreover, some of the company’s recently completed acquisitions including Borderfree e-commerce, Real Time Content and EngageOne Video software solution are expected to bolster inorganic growth in the to-be-reported quarter. Since the acquisition of Borderfree, Pitney Bowes’ e-commerce business has signed 59 new brands and retailers and has acted as a major growth driver. Also, the recently completed buyout of Enroute Systems Corporation has fortified the company’s shipping logistics portfolio and is expected to propel growth.

Furthermore, implementation of “go-to-market” strategies in major markets and transition to a new sales model in the mailing business in France is expected to stabilize the company’s SMB business.

Earnings Whispers

Our proven model does not conclusively show that Pitney Bowes will beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below.

Zacks ESP: Earnings ESP for the stock currently stands at 0.00%. This is because both the Zacks Consensus Estimate and the Most Accurate estimate are pegged at 41 cents.

Zacks Rank: Pitney Bowes carries a Zacks Rank #4 (Sell). Not that we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Enable Midstream Partners, LP ENBL has an Earnings ESP of +21.05% and a Zacks Rank #2. The company is expected to report first-quarter 2016 results on May 4, before the market opens.

Spectra Energy Partners, LP SEP has an Earnings ESP of +2.27% and a Zacks Rank #2. The company is slated to release first-quarter 2016 results on May 4, before the market opens.

Taubman Centers, Inc. TCO has an Earnings ESP of +3.53% and a Zacks Rank #3. The company is scheduled to release first-quarter 2016 results on May 2.

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SPECTRA EGY PTR (SEP): Free Stock Analysis Report
 
ENABLE MIDSTRM (ENBL): Free Stock Analysis Report
 
PITNEY BOWES IN (PBI): Free Stock Analysis Report
 
TAUBMAN CENTERS (TCO): Free Stock Analysis Report
 
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