Pitney Bowes' Earnings Disaster: What Went Wrong?

Pitney Bowes Inc. (PBI) rarely misses earnings estimates by a wide margin, nor does it warn that future profits would be lighter than expectations. In fact, the last major earnings disappointment for the postage meter company came in October 2000 when it cut profit projections because of economic conditions, and laid off 3% of its workforce. Pitney Bowes stock fell $10.13, or 28%, to $25.50 at the time.

So it was a surprise to investors when Pitney Bowes reported poor earnings results on Monday, although the stock lost a little bit less of its value this time. On Tuesday it finished lower by $7.06, or 15.02% at $39.93, which is right at its historical support level. For the quarter that ended Sept. 30, Pitney Bowes reported profits that fell to $127.7 million, or $0.58 per share, which is well below the company's original guidance which was in the range of $0.70 to $0.74 per share. To make matters worse, Pitney Bowes now expects a fourth quarter net income of $0.66 to $0.70 per share, which again, is well below the consensus analyst forecast of $.84 per share.

It didn't get any better when CEO Bruce Nolop said during the conference call that the company didn't have an answer to a question asking when "U.S. mailing (would) get back on track to... low single digit, flattish low single digit growth." But if there was a bright spot to the quarterly report, it was that the company increased its annual cash flow guidance to $625 million to $675 million from an original estimate of between $550 million and $625 million. Nolop said that "the fact that we've increased our guidance for free cash flow indicates that we can buy in more shares without having an impact on the credit ratios and balance sheet." Another slight positive was that the company announced a special investor call on November 15 to discuss ways to enhance shareholder value.

For contrarian investors, that call could signal a forthcoming bounce in the share price. In addition to stock buybacks that could help put an artificial floor on the stock, as Lehman Brothers (LEH) analyst Caroline Sabbagha wrote in a note to clients on Tuesday. The investor call could inject adrenaline into the stock because of the possibility of introducing a restructuring plan or growing dividends.