-- U.S. postage meter and mailing services provider Pitney Bowes reported
a 4% decline in constant currency revenues for the first quarter of 2012.
-- We are affirming our current ratings on the company, including our
'BBB+' corporate credit, the existing 'BBB+' senior unsecured, the 'BBB-'
preferred stock, and the 'A-2' commercial paper ratings.
-- We are also changing the outlook to negative from stable, reflecting
the challenges the company faces in stabilizing revenues in the current
mailing environment, along with current high leverage.
On May 9, 2012, Standard & Poor's Ratings Services revised its outlook on
Stamford, Conn.-based Pitney Bowes Inc. (PBI) to negative from stable. At the
same time, we affirmed our 'BBB+' corporate credit rating on the company and
the existing issue-level ratings.
The ratings on PBI reflect Standard & Poor's expectation that operating trends
will remain under pressure in 2012, and that fully adjusted debt levels will
drop somewhat by year-end 2012. The company reported a 4% decline in revenues
for the first quarter, continuing the trend of 2011. While we expect some
improvement in the trend as the year goes on, reflecting new product
introductions and increased sales activity, the company remains challenged to
achieve stable revenues in the current weak economy, which is exacerbating the
secular decline of mail. Recurring revenue continues to decline in the Small
and Medium Business Solutions segment, and Production Mail and Management
Services also showed declines in the first quarter. While Software and Mail
Services are showing growth, their relatively small size is not enough to
offset the declines in the mainline businesses. EBITDA has mirrored the trends
in revenues and totaled $883 million in 2011 compared with close to $1.2
billion in 2007.
We believe PBI is committed to reduce leverage from current levels and will
use cash and free cash flow to lower debt. The company has $400 million of
debt coming due in 2012 and an additional $375 million in 2013. We expect
fully adjusted credit measures to show improvement from the year-end 2011
level of 3.2x to the mid- to high-2x level by year-end. While we expect
revenues will remain under pressure in 2012, margins are likely to improve
modestly in 2012, as cost-reduction moves offset the lower contribution from
the U.S. Mailing segment. As a result, we expect reported EBITDA generation to
grow in the mid-single digits in 2012.
Reflecting weaker operating trends, we have revised our view of PBI's business
profile to "satisfactory" from "strong." The company's significant market
share in the U.S. postage meter market remains a positive rating factor. We
believe PBI is maintaining share in a shrinking addressable market. Despite
ongoing mid- to high-single-digit North American mailing revenue declines,
segment operating margin remains high--in the 30% area--and the business
supports the company's recurring and predictable cash flow. PBI has continued
to invest in growth businesses to offset mail-related declines, although
initiatives remain relatively small and have not offset the ongoing revenue
decline in the meter business. The company expects to introduce several new
products and to undertake several new initiatives later this year that may
help arrest the decline. Restructuring efforts and improving profitability in
non-U.S. Mailing segments has allowed the company to largely maintain EBITDA
margin in the low- to mid-20% range, with slight improvement likely in 2012.
The extent of the improvement may also depend on how much the company
increases its marketing expenses to support the new rollouts.
The financial risk profile remains "intermediate." Because of lower EBITDA
generation and declining finance receivables, fully adjusted debt to EBITDA
has been high since fiscal year-end 2008, despite modest reductions in funded
debt, as the finance assets decline. As of year-end 2011, we calculate debt to
EBITDA of about 3.2x. Finance assets have declined, reflecting the trend of
lease extensions, and were down by $250 million in 2011. However, recent lease
extensions have declined and sales have recently shown improving trends. We
expect fully adjusted debt leverage to improve in 2012, reflecting debt
paydowns and a modest increase in EBITDA.
PBI's short-term rating is 'A-2'. It has "adequate" sources of liquidity to
more than cover its needs over the next several years in the event of
moderate, unforeseen EBITDA declines. Sources of cash include cash and
short-term balances of $915 million, supplemented by a $1.0 billion revolving
credit facility and cash flow from operations of about $640 million. The
company recently extended its revolver to 2016 while reducing it to $1.0
billion from the previous $1.25 billion. In addition, the new agreement
contains a 3.5x adjusted leverage covenant which the previous one did not
have. Cash uses contemplate capital spending of about $200 million, about $577
million of notes payable and debt maturing in 2012, and the company's annual
dividend (including the dividend on the preferred stock) of over $300 million.
We expect that sources of liquidity will exceed uses by 1.2x or more.
Maturities over the next 24 months are manageable. We expect that net sources
would be positive, even with a 15%-20% drop in EBITDA. In our view, the
company's predictable and recurring cash flow will allow it to absorb
The negative outlook reflects our expectations that revenue will stabilize
later in 2012 and that most of discretionary cash flow will be directed to
debt reduction. However, we may lower the rating by one notch if revenue
continues to decline at the 2011 pace, reflecting lower mail volumes and weak
economic conditions and/or if sufficient cash is not used to pay down debt and
reduce leverage from 2011 levels to the mid- to high-2x level this year. We do
not foresee raising the rating within the two-year outlook horizon, given
current expectations for leverage and operating performance.
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Pitney Bowes International Holdings Inc.
Ratings Affirmed; Outlook Action
Pitney Bowes Inc.
Corporate Credit Rating BBB+/Negative/A-2 BBB+/Stable/A-2
Pitney Bowes International Holdings Inc.
Corporate Credit Rating BBB+/Negative/-- BBB+/Stable/--
Preferred Stock BBB-