Saturday, March 17, 2012

Will Pitney Bowes be able to maintain its hefty dividends going forward?

A couple of options for investments include putting your money in a savings account and earning less than 1% interest or buying Pitney Bowes stock and earning dividends that currently yield around 8.25% (based on PBI's current stock price at $18.15 per share.)

Pitney Bowes, Inc., a public company (NYSE: PBI) that pays a hefty dividend, is involved in a myriad of related businesses, including production print equipment and staffed FM services. Its staffed FM business is quite large. Some analysts are questioning PBI’s ability to grow – and its ability to continue paying large dividends - given trends in the printing industry and a growing reduction in mail volume.

Here’s a description of PBI’s business followed by two different recent articles about Pitney Bowes finances and financial condition.

Description of Business

Pitney Bowes Inc., incorporated on April 23, 1920, is a global provider of software, hardware and services to enable both physical and digital communications and to integrate those physical and digital communications channels. The Company offers a range of equipment, supplies, software, services and solutions for managing and integrating physical and digital communication channels. It conducts its business activities in seven reporting segments within two business groups: Small & Medium Business Solutions (SMB Solutions) and Enterprise Business Solutions (EB Solutions). It maintains field service organizations to provide servicing for customers’ equipment, usually in the form of annual maintenance contracts. It establishes credit approval limits and procedures of the customer and the type of product or service provided to control risk in extending credit to customers. In addition, it utilizes an automatic approval program for certain leases. The Company markets its products and services through the sales force, direct mailings, outbound telemarketing, independent distributors and the Internet. It sells to a variety of business, Governmental, institutional and other organizations.

Small & Medium Business Solutions

The Company’s the United States mailing includes the United States and Canadian revenue and related expenses from the sale, rental and financing of its mail finishing, mail creation, shipping equipment and software; supplies; support and other professional services, and payment solutions. Its international mailing includes the revenue and related expenses from the sale, rental and financing of its mail finishing, mail creation, shipping equipment and software; supplies; support and other professional services; and payment solutions outside the United States.

Enterprise Business Solutions

The Company’s production mail includes the worldwide revenue and related expenses from the sale, support and other professional services of its production mail systems, sorting and production print equipment. Its software includes the worldwide revenue and related expenses from the sale and support services of non-equipment-based mailing, customer relationship and communication and location intelligence software. Its management services includes worldwide revenue and related expenses from facilities management services; secure mail services; reprographic, document management services, and litigation support and eDiscovery services. Its mail services include the worldwide revenue and related expenses from presort mail services and cross-border mail services. Its marketing services include the revenue and related expenses from direct marketing services for targeted customers.


Moody's Places Pitney Bowes On Review For Possible Downgrade

March 15, 2012

Moody's Investors Service placed Pitney Bowes Inc.'s (PBI) investment-grade ratings on review for a possible downgrade because of the continuing deterioration of the mail and document-services company's operating results.

The credit ratings company, which has Pitney Bowes at A2--five notches above junk territory--expects to complete its review in about a month. Amid expectations that pressures on the company likely will accelerate, Moody's said it expects that any potential downgrade would be by more than a notch.

Pitney Bowes has been struggling to adapt to slumping mail use in North America as consumers turn to email and other communication methods. The company also has aimed to shift its focus from less-profitable businesses and last year launched a cloud-based service to print postage and shipping labels, among other efforts. The company's efforts to restore its growth through its new offerings will be a factor in the review, as well as plans to reduce its leverage.

Moody's also anticipates the company will see worsening mail-volume trends and increasing competition. The credit ratings company also said that Pitney Bowes's core business continues to be challenged by its sizable exposure to the small and medium-sized business segment, which accounts for nearly three-quarters of its operating profit.

Last month, Fitch Ratings downgraded Pitney Bowes for the second time in six months, citing the company's accelerating revenue declines and said the outlook on the triple-B rating--two notches above junk--was negative.

Pitney Bowes shares were down 8 cents at $18.30 in recent after-hours trading Thursday. Through the close, the stock has declined 24% in the past year.

-By Tess Stynes, Dow Jones Newswires; 212-416-2481;


Is Pitney Bowes Hiding Weakness?

By Rex Moore March 14, 2012

Pitney Bowes carries $2.4 billion of goodwill and other intangibles on its balance sheet. Sometimes goodwill, especially when it's excessive, can foreshadow problems down the road. Could this be the case with Pitney Bowes?

Before we answer that, let's look at what could go wrong.

AOL blows up; In early 2002, AOL Time Warner was trading for $66.27 per share. It had $209 billion in assets on its balance sheet, and $128 billion of that was in the form of goodwill and other intangible assets. Goodwill is simply the difference between the price paid for a company during an acquisition and the net assets of the acquired company. The $128 billion of goodwill in this case was created when AOL and Time Warner merged in 2000.

The problem with inflating your net assets with goodwill is that it can -- being intangible, after all -- go away if the acquisition or merger doesn't create the amount of value that was expected. That's what happened in AOL Time Warner's case. It had to write off most of the goodwill over the next few months, and one year later that line item had shrunk to $37 billion. Investors punished the stock along the way, sending it down to $27.04 -- or nearly a 60% loss.

In his fine book It's Earnings That Count, Hewitt Heiserman explains the AOL situation and how two simple metrics can help minimize your risk of owning a company that may blow up like this. Let's see how Pitney Bowes holds up using his two metrics.

Intangible assets ratio; This ratio shows us the percentage of total assets made up by goodwill and other intangibles. Heiserman says he views anything over 20% as worrisome, "because management might be overpaying for the acquisition or acquisitions that gave rise to the goodwill."

Pitney Bowes has an intangible assets ratio of 29%.

This is not so far over Heiserman's threshold as to cause panic, but you'll want to keep an eye on this number over the next few quarters. It's also useful to compare it to tangible book value, which I explain below.

Tangible book value; Tangible book value is simply what remains after subtracting goodwill and other intangibles from shareholders' equity. If this is not a positive value, Heiserman advises you to run away because such companies may "lack the balance sheet muscle to protect themselves in a recession or from better-financed competitors."

Pitney Bowes' tangible book value is -$2.4 billion, which obviously raises a yellow flag.

Foolish bottom line; If you own Pitney Bowes, or any other company that fails one of these checks, make sure you understand the business model and management's objectives. You can never base an entire investment thesis on one or two metrics, but there is a yellow flag here. I'll help you keep a close eye on these ratios over the next few quarters by updating them soon after each earnings report.

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