Pitney Bowes (NYSE:PBI) is a perfect example of the type of company investors can't evaluate strictly by its quarterly earnings releases. (Not that they shouldn't read them -- and Pitney Bowes' Q3 release came out last night.) Despite slow sales and earnings growth, the document management company pays a dividend and generates plenty of free cash flow, which makes it an option for income-focused investors.
Pitney Bowes breaks its business into three segments:
- Global Mailing, which sells and rents mailing equipment worldwide;
- Enterprise Solutions, which sells software systems for mailing, sorting, billing and other uses, as well as contracts to provide services for mailing, document management and other services; and
- Capital Services, which provides external financing for third-party equipment (including aircraft, trucks, and more), a business the company has been moving away from this year.
Q3 shaped up like the kind of quarter investors have come to expect. Revenue growth was minimal year over year, but was outpaced by growth in operating profits. Free cash flow came in well above net income. On the business side, the news seems fairly upbeat as customers worldwide are showing interest in the Global Mailing products.
The company also closed the acquisition of Maryland-based DDD, a contract services company that specializes in mail processing, messenger services, logistics and more, and turned in $70 million in 2002 revenues. DDD will join Enterprise Solutions, where it will be counted on to develop into a growth business servicing government and other customers. This would be especially welcome since Enterprise segment revenues fell year over year.
Despite its modest revenue growth, Pitney Bowes is a performer. It's a focused business -- an exit from the imaging market in 2001 led to the creation of Imagistics (NYSE:IGI) -- that buys back shares, has decent net margins and strong free cash flow, and sports the added benefit of a nice little dividend. Having survived the dot-com era, the company just keeps chugging along.
The "secret" is apparently out -- the stock has tracked the S&P 500 closely and is up considerably these past 12 months. As a result, it's not the value it was earlier this year, but Pitney Bowes is nevertheless one to watch for investors who believe that slow and steady wins the race.
Matthew Emmert scours the universe of dividend-paying stocks in his Motley Fool Income Investor newsletter. Dave Marino-Nachison can be reached at [email protected].
