Can Pitney Bowes (PBI) Pull Off A Surprise In Q2 Earnings?

Pitney Bowes Inc. (NYSE:PBI) is slated to report second-quarter 2017 results before the opening bell on Aug 1.

In the last reported quarter, the company’s earnings topped the Zacks Consensus Estimate by 5.9%, putting an end to the streak of earnings misses in the last five quarters. Pitney Bowes has an average negative surprise of 4.6% over the trailing four quarters.

Factors to Consider

Pitney Bowes’ concerted efforts to transform its business over the past four years are finally beginning to show results. Last quarter, the company’s Software business, which has been long hurting from macro woes, finally returned to growth. This trend might likely continue in the to-be-reported quarter as well, driven by a rise in license revenue, high data and SaaS revenues.

Speaking of catalysts, Pitney Bowes’ Global Ecommerce business continues to be one of the strongest profit churners. In less than five years, Global Ecommerce has expanded from a $20 million business to worth over $400 million. During first-quarter 2017, Digital Commerce Solutions reported 9% year-over-year increase on the back of strong Global Ecommerce business (up 17%).

We believe, exponential increase in cross border trade volume will continue to escalate Ecommerce sales in the soon-to-be-reported quarter. Other factors – including introduction of new products and digital capabilities, partner channel expansion, improvement in the direct channel, and expansion of the Presort Services network – are likely to act as second-quarter growth catalysts.

Despite these positives, prolonged softness in the mailing business is likely to prove detrimental to Pitney-Bowes’ growth momentum to some extent. Lower recurring supplies revenues are expected to hurt the mailing business for the quarter under review. In addition, strengthening of the U.S. dollar pose might play spoilsport for the company’s cross-border sales.

In addition, escalating marketing expenses in relation to the ERP implementation program is likely to act as an overhang for the second-quarter results. Pitney Bowes expects incremental marketing expense in the ERP program, related to digital capabilities enhancement, for entire 2017. Also, capital expenses associated with the ERP project pose as a concern for the company.

Earnings Whispers

Our proven model does not conclusively show that Pitney Bowes will beat earnings estimates in this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Zacks ESP: Earnings ESP for the company is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 36 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Pitney Bowes has a Zacks Rank #3. Though a Zacks Rank #1, 2 or 3 increases the predictive power of the ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Key Picks

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter.

Broadcom Limited (NASDAQ:AVGO) has an Earnings ESP of +2.57% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Axcelis Technologies, Inc. (NASDAQ:ACLS) has an Earnings ESP of +3.03% and a Zacks Rank #2.

CACI International Inc (NYSE:CACI) has an Earnings ESP of +1.83% and a Zacks Rank #2.

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