Pitneys Bowes' business model is a combination of a number of performing businesses. It had growth in 4 of its 7 business segments: International Mailing, Software, Mail Services and Marketing Services. It also had improving trends for equipment sales, which was led by its Connect+ digital mailing system. However, while SMB equipment sales comparisons improved year-over-year, there continued to be declines in the SMB recording revenue streams.
There was also weakness in the Production Mail and Management Services businesses. The company saw its largest weakness in production mail. The weakness was in large ticket deferrals, not lost business. There were delays in Europe and in the financial sector in the United States, which the company anticipates will improve later in the year. Part of the weakness in company's numbers can also be attributed to Drupa, a big show in the production mail and print section, which is currently ongoing. A lot of customers will hold back on their purchases until Drupa, so that they can see what is new and exciting.
Pitney Bowes is increasing investment in Volly, a secure digital mail delivery platform. Volly makes it easy to manage multiple bills and statements with single sign-on. It requires customers to enable bills to be delivered digitally. The company anticipates the brands that are providing the bills and statements will be the driver of the business in that the brands will encourageconsumers to participate. Earlier in the quarter, Pitney Bowes announced a partnership in which the Australia Post will incorporate Volly into its digital offerings. That service will launch later this year. The company intends to launch Volly in the United States in the fourth quarter and revenue in the United States will probably be on a click model. Volly will not contribute meaningfully to revenue in 2012.
Pitney Bowes is continuing its global rollout of the Connect+ product line. It launched the product in Germany in the first quarter and plans to launch it in France in the second quarter.
At the end of this quarter, Pitney Bowes signed a multi-year agreement with Facebook to offer global geocoding, reverse geocoding and other location intelligence applications and data to integrate into Facebook's applications and services. It will provide Facebook developers and their users location processing across desktops, laptops, tablets and mobile platforms. The Facebook deal is a good sized deal with multi-year revenue streams.
The company continues to focus on productivity gains in order to allow it to increase its investment in e-commerce in the second quarter. Capital expenditures on Volly will probably cost an additional amount on the high end of $.05 to $.10 of EPS versus the prior year.
Financials
Revenue for the quarter was $1.3 billion, which was a decline of 4 percent, excluding the impact of currency. U.S. revenue declined by 4 percent, while non-U.S. revenue declined by 7 percent (5 percent excluding the impact of currency). 31 percent of the company's total revenue came from non-U.S. operations. The company expects revenue, excluding the impact of currency, to be between 2 percent growth to a 2 percent decline compared to 2011 and for revenue to improve throughout the year.
Margins on earnings before interest and taxes was 16.8 percent, which was 90 basis points higher than the higher year. Margins increased in 4 of the 7 business units.
Adjusted earnings per diluted share from continuing operations for the quarter was $0.63. However, $.11 was the result of a tax benefit. Excluding that benefit, adjusted earnings per share for the first quarter was $0.52, which was slightly lower than the $0.53 earned last year.
Free cash flow for the quarter was $211 million. It was lower than the prior year due to higher working capital requirements due to timing of disbursements, higher CapEx investment and less of a benefit from finance receivables. Pitney Bowes also made voluntary contributions of $85 million to its U.S. pension fund and $10 million to our Canadian pension fund. As a result, U.S. pension plan is approximately 95% funded and the Canadian pension plan is approximately 85% funded. Both the U.S. and Canadian pension plans will be frozen as of the end of 2014. It expects free cash flow to be in the range of $700 million to $800 million in 2012.
At the end of the quarter, the company had $178 million of commercial paper outstanding and it expects to pay down a portion of this commercial paper balance during the year. It currently has $400 million of additional debt scheduled to mature in October and is evaluating alternatives as to how best to manage its debt. Of the $950 million of cash at the end of the quarter, about $550 million is overseas and there's a cost associated with repatriating the cash. It has some domestic cash on hand, some access to commercial paper and could go to the debt markets as well. It also has a $1 billion bank line of credit.
The full transcript of the conference call can be found on Seeking Alpha at the following link:
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