Pitney Bowes (PBI) is a $5.6 billion company that employs 33,000 worldwide and provides software, hardware and services that integrate physical and digital communications channels. That is what the company website says that Pitney Bowes does. To me, Pitney Bowes is a company that provides machines to do mail metering for companies, and they have done it well for 90 years.
Pitney Bowes has also treated their long term stockholders extremely well, treating them to 30 straight years of increased dividends. Currently the stock pays $1.50 a year in dividends on a share price just under $18, for an 8.4% yield. Up front, all the numbers look great, a reported EPS for 2011 of $3.04, and an extremely low PE of 6.5. Let us dive a little deeper into the reported numbers though.
The 4th quarter report for Pitney Bowes shows a large amount of red flags. First of all, total revenue fell from 5.43 billion in 2010 to 5.28 billion in 2011. Their two largest areas of revenue were the lines that fell the hardest, equipment sales and business services. Another red flag is that $1.30 of earnings were made from credits due to discontinued operations, i.e. their former Capital Services business.
The company was able to generate 1.03 billion of free cash flow in 2011, in which 300 million went to dividends, 123 million to pensions, 107 million to restructuring, 100 million to repurchase common stock, and 50 million in debt reduction. The company only expects to generate between 700-800 million of free cash flow in 2012.
Total assets and liabilities for the company stayed pretty steady from 2010 to 2011, Assets went from 8.16 billion in 2010 to 8.14 billion in 2011 and liabilities went from 7.91 billion in 2010 to 7.89 billion in 2011.
Earnings per share projections for 2012 and 2013 are projected as 2.12 a share and 2.09 a share respectively. Just two months ago, analysts were predicting 2.18 and 2.17 respectively.
Conclusion - Pitney Bowes does not have the innovative ideas to produce growth as we decrease our use of metered mail, and depend more on the internet for our mail, banking, bill pay, etc. The company is also in that 70% dividend payout territory which many consider too high to have cash flow to improve or expand your business. Long term investors will want another dividend increase for 2013, to continue the 30 year tradition the company has forged. Also with free cash flows decreasing, and liabilities staying the same (possibly increasing if they increase the dividend again), this is not a stock you want in your portfolio as a long term income investor.