Please ensure Javascript is enabled for purposes of website accessibility

Why Pitney Bowes Stock Dropped as Much as 24% at the Open Today

By Reuben Gregg Brewer - May 4, 2020 at 11:22AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Pitney Bowes' earnings weren't terribly inspiring, but the bigger issue is still on the balance sheet.

What happened

Shares of Pitney Bowes (PBI -4.62%), a mailing and e-commerce specialist, saw its shares plummet at the open of trading on May 4. The decline hit 24% or so before the stock started to recover. Still, the shares were off by around 11% after an hour of trading. The downward pressure here came from the company's first-quarter earnings release.

So what

From a big-picture perspective, Pitney Bowes' first-quarter results weren't terrible, given the broader market environment -- specifically the global economic impact of COVID-19. For example, adjusted revenues were up 1% year over year in the quarter. Adjusted earnings, meanwhile, were $0.05 per share, down from $0.11 a year ago. That's not great, but these are difficult times.   

An arm pointing to a graph on computer screen

Image source: Getty Images.

The real concerns here more likely stem from the other facts that came out with the release of first-quarter earnings. For example, the $1.15-per-share goodwill impairment charge management announced. It was taken to write down the value of the company's e-commerce business. That's troubling because it suggests Pitney Bowes overpaid, materially, as it used acquisitions to reposition its business for a more technology-driven future. Worse, the company burned cash in the quarter, with negative cash flow of $47 million (the cash on the balance sheet fell 28% in the quarter). There was a list of "good reasons" given for spending more than came in the door. But when you consider negative cash flow in light of the fact that long-term debt makes up roughly 99% of Pitney Bowes' capital structure, any cash burn is hard to ignore. That's doubly true when the company's financial results aren't hitting on all cylinders.  

Now what

On top of the many negatives here, Pitney Bowes withdrew its full-year guidance for 2020. The company has been trying to reposition itself in recent years, but the market environment just got a lot harder. It's clearly having an impact on financial results, and it could get worse before it gets better. After a big asset writedown, investors should carefully consider the progress Pitney Bowes is making as it reworks its business before stepping aboard here. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Pitney Bowes Inc. Stock Quote
Pitney Bowes Inc.
PBI
$3.51 (-4.62%) $0.17

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
323%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.