What happened
On May 4 mailing and e-commerce specialist Pitney Bowes (PBI 4.76%) reported earnings. The stock fell in the low teens for the day, with steeper intraday losses along the way. On May 5 investors pushed the shares lower again, with a drop of as much as 10% before lunchtime. After a big decline stocks often bounce back a little the next day...but not this time.
So what
The big picture for Pitney Bowes isn't great. It has been attempting to shift its business toward the digital realm, using acquisitions as it attempts to find a new, more profitable direction. That's left the company with a very heavy debt load -- long-term debt makes up roughly 99% of the capital structure. And it covered its 2019 interest costs by only about 1.3 times, which doesn't give the company a lot of room for error.
Image source: Getty Images.
So first-quarter earnings, which came in at just $0.05 per share after an adjustment for one-time items, could be problematic. Perhaps not terrible given the COVID-19 issues the world is facing, but with so much debt, Pitney Bowes doesn't seem able to handle too much adversity. Which is where the $1.25-per-share impairment charge in the quarter comes into play. This, and some smaller adjustments, led to a loss of $1.22 per share according to generally accepted accounting principles (GAAP). However, the impairments were taken in the company's e-commerce business. E-commerce is supposed to be the long-term future for Pitney Bowes, so it's more than a little troubling that something went far enough wrong on that side of the business to warrant a writedown. Either the company overpaid for the business, or the future for the business isn't as good as management once thought.
Now what
Pitney Bowes' turnaround plans were going to be hard to implement even in a best-case scenario. After some unsettling updates in the first quarter and the very real prospect that today's difficult market environment could continue for a while, investors appear to be reevaluating Pitney Bowes' long-term prospects. And at this point, Wall Street appears to be taking an increasingly dim view of the future.
