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Why Pitney Bowes Stock Crashed 16% After Beating Earnings

By Rich Smith - Updated Apr 30, 2021 at 11:14AM

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This isn't how earnings beats are supposed to work.

What happened

Good news for Pitney Bowes (PBI 1.66%) shareholders today: Your company just reported a big earnings beat, with pro forma profits of $0.07 per share eclipsing analyst projections for $0.04, and $915 million in sales beating the prediction of $874 million.

Bad news for Pitney Bowes shareholders today: No one seems to care -- and Pitney Bowes stock is down 16.1% as of 11:20 a.m. EDT.  

Big red arrow going down over a stock chart

Image source: Getty Images.

So what

Why are investors reacting so negatively to Pitney Bowes' first-quarter 2021 earnings beat? Well, consider the numbers. On the one hand, yes, Pitney performed better than expected, with sales climbing 15% year over year, and pro forma profits exceeding expectations -- indeed, rising 40% year over year.

However, those are just the pro forma numbers. When calculated according to generally accepted accounting principles (GAAP), Pitney didn't earn profits, but rather lost money -- $0.18 per diluted share -- and reported negative free cash flow to boot (albeit only $1 million).

I can't imagine investors were as pleased by those numbers.

Now what

All that being said, Pitney Bowes' business did improve in Q1 2021. Pro forma profits were up. GAAP losses -- while undeniably a loss -- were not nearly as large as the $1.22 per share reported lost in Q1 2020.  

And business continues to improve. Management reiterated past guidance for sales to grow in the low- to mid-single-digit range in fiscal 2021, and said that pro forma profits, at least, will "grow over prior year driven largely by improvement in Global Ecommerce." In actual dollars and cents, that appears to translate into 2021 revenue of perhaps $3.7 billion (in line with analyst estimates), and pro forma profits above $0.30, which might -- but also might not -- reach analysts' target of $0.34 per share this year.

It's not the greatest news Pitney Bowes could have reported, granted, but I'm also not certain it's bad enough to justify a 16% sell-off.

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