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.
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.
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.
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.