We maintain a Neutral recommendation on Pitney Bowes Inc (PBI). The company continued to make investments during 2011, as per its Strategic Transformation programs. However, the revenue for the year failed to show any growth, declining by 3% year over year and 6.5% for the fourth quarter.
Benefits from the Strategic Transformation programs were evident from EBIT improvement in four of the company’s seven business segments. Pitney’s equipment sales also improved in the first half of the year. However, continuing economic uncertainty remained a matter of concern, resulting in a few customers postponing their new equipment purchases and capital commitments during the second half of the year.
Pitney Bowes is a leading supplier of products and services in most of its business segments. Its meter base and its ability to place and finance meters in key markets contribute significantly to its revenue and profitability.
However, all segments face competition from a number of companies. We believe that its vast experience and reputation for product quality, as well as its sales and support service organizations, are important factors in influencing customer choices with respect to its products and services.
Significant investment in research and development operations differentiates Pitney Bowes from its competitors. The company has many research and development programs that are directed toward developing new products and service offerings.
As a result of these efforts, it has been awarded a number of patents for existing and planned products. However, its businesses do not depend on any one patent, any group of related patents, any one license or any group of related licenses.
The company continues to invest for future growth by delivering new products and solutions. Pitney Bowes continues with its phased launch of its innovative Connect+ mailing system and completed the acquisition of Portrait plc.
The company reported an outstanding free cash flow for the latest reported quarter of $215 million and generated $1.03 billion of free cash flow for the year. Driven by its sound cash structure, Pitney’s board of directors approved an increase in quarterly dividend for the 30th consecutive year.
However, most of its revenue is directly or indirectly subject to regulation and oversight by the USPS (United States Postal Service) and foreign postal authorities. It also depends on a healthy postal sector in its operating regions, which could be influenced positively or negatively by legislative or regulatory changes.
Its profitability and revenue in a particular country could be affected by adverse changes in postal regulations, the business processes and practices of individual posts, the decision of a post to enter into particular markets in direct competition, or the impact of any of these changes on postal competitors that do not use its products or services. An accelerated increase in the acceptance of electronic delivery technologies or other displacement of physical mail could adversely affect its business.
Pitney Bowes currently holds a Zacks Rank #3 which also implies short term Hold recommendation on the stock.
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