The Daily Magic Formula Stock for 08/30/2008 is Pitney Bowes Inc.. According to the Magic Formula Investing Web Site, the ebit yield is 10% and the EBIT ROIC is 75-100 %.
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Pitney Bowes Inc. was incorporated in the state of Delaware on April 23, 1920, as the Pitney Bowes Postage Meter Company. Today, Pitney Bowes Inc. is the largest provider of mail processing equipment and integrated mail solutions in the world. In the report, the terms â€śwe,â€ť â€śus,â€ť â€śour,â€ť or â€śCompanyâ€ť are used to refer collectively to Pitney Bowes Inc. and its subsidiaries.
We offer a full suite of equipment, supplies, software and services for end-to-end mailstream solutions which enable our customers to optimize the flow of physical and electronic mail, documents and packages across their operations.
We operate in two business groups, Mailstream Solutions and Mailstream Services. We operate both inside and outside the United States. See Note 19 to the Consolidated Financial Statements for financial information concerning revenue, earnings before interest and taxes (EBIT) and identifiable assets, by reportable segment and geographic area.
For more information about us, our products, services and solutions, visit www.pb.com . Also, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments or exhibits to those reports will be made available free of charge through our Investor Relations section of our website at www.pb.com/investorrelations as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission (SEC). The information found on our website is not part of this or any other report we file with or furnish to the SEC.
We conduct our business activities in seven business segments within the Mailstream Solutions and Mailstream Services business groups. The principal products and services of each of our business segments are as follows:
U.S. Mailing : Includes the U.S. revenue and related expenses from the sale, rental and financing of our mail finishing, mail creation, shipping equipment and software; supplies, support and other professional services; and payment solutions.
International Mailing : Includes the non-U.S. revenue and related expenses from the sale, rental and financing of our mail finishing, mail creation, shipping equipment and software; supplies, support and other professional services; and payment solutions.
Production Mail : Includes the worldwide sale, financing, support and other professional services of our high-speed, production mail systems and sorting equipment.
Software : Includes the worldwide sale and support services of non-equipment-based mailing and customer communication and location intelligence software.
Management Services : Includes worldwide facilities management services; secure mail services; reprographic, document management services; and litigation support and eDiscovery services.
Mail Services : Includes presort mail services and cross-border mail services.
Marketing Services : Includes direct marketing services for targeted customers; web-tools for the customization of promotional mail and marketing collateral; and other marketing consulting services.
We maintain extensive field service organizations to provide servicing for customersâ€™ equipment, usually in the form of annual maintenance contracts.
Our products and services are marketed through an extensive network of direct sales offices in the U.S. and through a number of our subsidiaries and independent distributors and dealers in many countries throughout the world. We also use direct marketing, outbound telemarketing and the Internet to reach our existing and potential customers. We sell to a variety of business, governmental, institutional and other organizations. We have a broad base of customers, and we are not dependent upon any one customer or type of customer for a significant part of our revenue. We do not have significant backlog or seasonality relating to our businesses.
We establish credit approval limits and procedures at regional, divisional, subsidiary and corporate levels based on the credit quality of the customer and the type of product or service provided. In addition, we utilize an automatic approval program (AAP) for certain leases within our internal financing operations. The AAP program is designed to facilitate low dollar transactions by utilizing historical payment patterns and losses realized for customers with common credit characteristics. The program dictates the criteria under which we will accept a customer without performing a more detailed credit investigation. The AAP considers criteria such as maximum equipment cost, a customerâ€™s time in business and payment experience with us. We base our credit decisions primarily on a customerâ€™s financial strength.
We are a leading supplier of products and services in our business segments, particularly postage meters, mailing equipment and related document messaging services and software, management services, mail services and marketing services. Our meter base and our continued ability to place and finance meters in key markets is a significant contributor to our current and future revenue and profitability. However, all of our segments face strong competition from a number of companies. In particular, we face competition for new placements of mailing equipment from other postage meter and mailing machine suppliers, and our mailing products, services and software face competition from products and services offered as alternative means of message communications. In addition, the financing business is highly competitive. Leasing companies, commercial finance companies, commercial banks and other financial institutions compete, in varying degrees, in the markets in which our finance operations do business. Our competitors range from very large, diversified financial institutions to many small, specialized firms. We offer a complete line of products and services as well as a variety of finance and payment offerings to our customers. We finance the majority of our products through our captive financing business and we are a major provider of business services to the corporate, financial services, professional services and government markets, competing against national, regional and local firms specializing in facilities and document management throughout the world.
We believe that our long experience and reputation for product quality, and our sales and support service organizations are important factors in influencing customer choices with respect to our products and services.
Research, Development and Intellectual Property
Our significant investment in research and development operations differentiates us from our competitors. We have many research and development programs that are directed toward developing new products and service offerings. As a result of our research and development efforts, we have been awarded a number of patents with respect to several of our existing and planned products. We do not believe our businesses are materially dependent on any one patent or any group of related patents or on any one license or any group of related licenses. Our expenditures on research and development were $186 million, $165 million and $166 million in 2007, 2006 and 2005, respectively.
We depend on third party suppliers for a variety of services, components, supplies and a portion of our product manufacturing. We believe we have adequate sources for our purchases of materials, components, services and supplies for products that we manufacture or assemble. However, as we continue to shift from direct manufacturing to assembly of our products, we rely to an increasing extent on third-party suppliers.
We are subject to the U.S. Postal Serviceâ€™s (USPS) regulations and those of foreign postal authorities, related to product specifications and business practices involving our postage meters. From time to time, we will work with these governing bodies to help in the enhancement and growth of mail and the mail channel. See Legal and Regulatory Matters in Managementâ€™s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Form 10-K.
Employees and Employee Relations
At December 31, 2007, we employed 26,267 persons in the U.S. and 9,898 persons outside the U.S. Headcount increased in 2007 compared to 2006 primarily due to our acquisitions in 2007. We believe that our current relations with employees are very good. The large majority of our employees are not represented by any labor union. Our management follows the policy of keeping employees informed of decisions, and encourages and implements employee suggestions whenever practicable.
MANAGEMENT DISCUSSION FROM LATEST 10K
Revenue grew 7% in 2007 to $6.1 billion. Acquisitions and foreign currency translation contributed about 4% and 2%, respectively to this growth. Acquisitions for this year included MapInfo Corporation, Digital Cement, and Asterion SAS.
Income from continuing operations was $361 million in 2007 compared with $566 million in 2006 and diluted earnings per share from continuing operations was $1.63 in 2007 compared with $2.51 in 2006. In 2007, diluted earnings per share from continuing operations was reduced by restructuring and impairment charges of 87 cents, 5 cents for the purchase accounting alignment for MapInfo, and 16 cents for tax adjustments, related principally to a valuation allowance for net operating losses outside the U.S. In 2006, diluted earnings per share from continuing operations was reduced by restructuring charges of 10 cents and tax adjustments of 9 cents and increased by 1 cent from net legal settlements.
Our Software and Mail Services segments experienced strong results during 2007. These strong performances were offset by disappointing results in Europe, weaker performance in the legal solutions portion of our Management Services segment, and lower sales at U.S. Mailing due to the wind-down of meter migration. In addition, weakness in certain sectors of the economy, such as financial services, adversely affected our results during the second half of 2007.
On November 15, 2007, we announced a plan to lower our cost structure, accelerate efforts to improve operational efficiencies, and to transition our product line. As a result of this program, we expect a net reduction of about 1,500 positions across business lines and geographies, representing approximately 4 percent of the global employment base. Also, following a comprehensive review of our portfolio, we decided to explore strategic alternatives to determine the best course of action for our U.S. Management Services business.
See Results of Operations for 2007, 2006 and 2005 for a more detailed discussion of our results of operations.
We believe that the actions we took in the fourth quarter of 2007, and actions that we will continue to take in 2008, will position us for sustained, long-term improvement in earnings and increased shareholder value. We expect to realize approximately $70 million in pre-tax annual benefits from these actions in 2008. We intend to reinvest the majority of these benefits in programs to improve our customersâ€™ experience and our operational efficiencies. We are targeting $150 million in pre-tax annual benefits by 2009. We plan to use about half of these benefits to improve customer processes and generate revenue.
We expect our mix of revenue to continue to change, with a greater percentage of revenue coming from diversified revenue streams associated with fully featured smaller systems and a smaller percentage from larger system sales. We also expect a greater percentage of revenue growth from the Software and Mail Services segments. In addition, we expect to derive further synergies from our recent acquisitions. We will continue to remain focused on enhancing our productivity and to allocate capital in order to optimize our returns.
Results of Operations 2007 Compared to 2006
Business segment revenue
U.S. Mailingâ€™s revenue remained flat. Revenue benefited from growth in supplies, payment solutions, and the sale of equipment related to shape-based rating. However, results were unfavorably impacted by lower equipment sales due to the wind-down of meter migration and weak economic conditions. International Mailingâ€™s revenue grew by 6%, including favorable foreign currency translation of 8%. The segmentâ€™s results were negatively impacted by lower sales and rentals in Europe as delays in postal liberalization across Europe affected customer purchases. Worldwide revenue for Production Mail grew by 5%, primarily driven by favorable foreign currency of 3% and acquisitions as higher equipment placements in the U.S. were offset by lower sales in Europe. Softwareâ€™s revenue grew by 71% driven by continued strong worldwide demand for our software solutions, the acquisition of MapInfo, and favorable foreign currency translation of 4%.
Management Services revenue increased by 6% due to the acquisition of Asterion SAS and favorable foreign currency translation of 2%. The segmentâ€™s revenue growth was negatively impacted by weakness in our legal solutions vertical as well as print contracts in the prior year that did not repeat in 2007. Mail Services revenue increased by 24% due to continued growth in presort and cross-border mail services. Marketing Services revenue increased by 18% driven primarily by acquisitions. Revenue growth for this segment was negatively affected by lower revenue from our motor vehicle registration services program.
Business segment earnings before interest and taxes (EBIT)
We use EBIT as a measure of our segment profitability. Refer to the reconciliation of segment amounts to income from continuing operations before income taxes and minority interest in Note 19 to the Consolidated Financial Statements.
U.S. Mailingâ€™s EBIT grew 1% due to the increase in mix of higher margin revenue from payment solutions and supplies as well as our continued focus on controlling operating expenses. International Mailing EBIT decreased 10%. The segmentâ€™s profitability was adversely impacted by lower equipment sales and rentals in Europe, and incremental costs in 2007 related to back office operations, including the outsourcing of our European order and financial processing. Production Mail EBIT increased 11% driven primarily by revenue growth and net legal recoveries of approximately $4 million in Europe. Software EBIT increased 66%, driven by revenue growth partially offset by integration costs for the MapInfo acquisition.
Management Services EBIT decreased 9% due to continued weakness in our legal solutions vertical. Mail Services EBIT grew by 51% driven by revenue growth, successful integration of acquired sites, and increased operating efficiencies. Marketing Services EBIT decreased 55%, principally due to lower revenue in our motor vehicle registration services program.
Equipment sales revenue decreased 3% from the prior year, primarily due to lower sales of mailing equipment in the U.S. and Europe, partially offset by favorable foreign currency translation of 3%.
Supplies revenue increased 16% from the prior year due to the continued transition of our meter base to digital technology. Acquisitions and foreign currency translation contributed 4% and 3% to this growth, respectively.
Software revenue increased 71% from the prior year primarily driven by strong worldwide demand for our software solutions, acquisitions which contributed 50%, and currency translation which contributed 4%.
Rentals revenue decreased 6% from the prior year due to the continued downsizing by customers to smaller machines.
Financing revenue increased 9% from the prior year primarily due to higher revenue from payment solutions and equipment leases. Foreign currency translation accounted for 2% of this growth.
Support services revenue increased 6% from the prior year due primarily to acquisitions, which contributed 2%, and foreign currency translation, which contributed 3% to this growth.
Business services revenue increased 11% over the prior year. This increase was driven by strong growth in our presort and cross-border mail services. Acquisitions contributed 5% and foreign currency translation contributed 1% to this growth.
Costs of revenue
Cost of equipment sales as a percentage of revenue increased to 52.2% in 2007 compared with 50.5% in the prior year, primarily due to the decrease in mix of higher margin equipment sales in the U.S.
Cost of supplies as a percentage of revenue increased to 27.1% in 2007 compared with 26.5% in the prior year, primarily due to increased sales of private label toner, ink and other supplies which have lower margins than our meter-related supplies.
Cost of software as a percentage of revenue increased to 23.7% in 2007 compared with 21.3% in the prior year, primarily due to the acquisition of MapInfo.
Cost of rentals as a percentage of revenue increased to 23.2% in 2007 compared with 21.8% in the prior year, primarily due to higher depreciation costs from placements of new digital meters.
Cost of support services as a percentage of revenue increased to 56.9% in 2007 compared with 55.8% in the prior year, primarily due to an increase in mix of production mail and international mailing revenue.
Cost of business services as a percentage of revenue remained flat at 78.2%. Improving margins in our presort and cross-border services were offset by lower margins in our legal solutions business.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
Results of Operations â€“ Second Quarter of 2008 compared to Second Quarter of 2007
Business segment results
During the second quarter of 2008, Mailstream Solutions revenue decreased 1% and EBIT decreased 10% compared with the prior year. U.S. Mailingâ€™s revenue decreased 14% primarily due to lower placements of mailing equipment compared with the prior year due to the postal rate case in the second quarter of last year, which stimulated incremental sales during the period; the wind-down of meter migration, and current weak economic conditions. U.S. Mailingâ€™s EBIT decreased 16% principally due to the lower revenue growth and the mix of business compared to last year, which included the sale of higher margin mailing equipment upgrade kits that enabled mailers to comply with the change in postage rates. Revenue continues to be adversely affected by the on-going changing mix to more fully featured smaller systems. International Mailingâ€™s revenue grew by 20%, partly driven by foreign currency translation of 12% and acquisitions of 1%. International Mailingâ€™s EBIT increased 41%. Higher rental revenue and increased sales of supplies in France, and continued improving trends in the U.K. and Norway contributed to the revenue growth. International Mailingâ€™s EBIT was positively affected by the settlement of a legal matter of $7.5 million and an improving cost structure both in Europe. Revenue for Production Mail grew by 3% driven by foreign currency translation of 5%. Revenue growth from higher equipment placements in the U.K. and France was offset by lower equipment sales in the U.S. Production Mailâ€™s EBIT decreased 18% driven by the favorable net legal recoveries last year in Europe of approximately $3 million and the higher geographic mix of business outside the U.S. Softwareâ€™s revenue grew by 23% driven partly by acquisitions in 2007, which contributed 16%, and foreign currency translation of 4%. Software sales increased outside of the U.S., but declined within the U.S. as a result of the economic uncertainty, which resulted in some large enterprise accounts deferring their purchase decisions. Softwareâ€™s EBIT decreased by 27% primarily due to timing of operating costs associated with the acquisition of MapInfo, product mix, and investments in sales, marketing, and research and development as the business expands globally.
During the second quarter of 2008, Mailstream Services revenue grew 14% and EBIT grew 37% compared with the prior year. The Management Services segment reported a revenue increase of 9%. Acquisitions and foreign currency translation contributed 9% and 3% to this growth, respectively. Management Services EBIT increased by 14%. EBIT margins benefited from improvements in the U.S. where we focused on reducing costs, particularly through several on-site productivity initiatives, but the benefit was partially offset by operating costs associated with our acquisition in France. The segmentâ€™s revenue and EBIT were also affected by lower transaction volumes for some financial services customers. Mail Services revenue grew 23%. Continued growth in presort and international mail services contributed 15% and acquisitions contributed 8% to this revenue growth. Mail Services EBIT grew by 46% to $16.0 million as a result of operating leverage from the increase in mail volume processed and increased operating efficiencies. Marketing Services revenue grew 21% and EBIT increased by $2.9 million. The segments results benefited from continued expansion of our marketing services programs. Acquisitions added 11% to the revenue growth. The segmentâ€™s EBIT improved $2.0 million versus the prior year as a result of our phased exit from the motor vehicle registration services program.
Revenue by source
Equipment sales revenue decreased 14% compared to the prior year. Sales of equipment in U.S. Mailing were lower primarily due to the postal rate case in the second quarter of last year, which stimulated incremental sales during that period; lower benefits from meter migration, and weak economic conditions which resulted in an overall unfavorable impact on equipment sales of 19%. Foreign currency translation had a favorable impact of 4%.
Supplies revenue increased by 5% from the prior year, principally due to foreign currency translation.
Software revenue increased by 24% compared to the prior year. The revenue growth was primarily driven by acquisitions of 15%, foreign currency translation of 4%, and higher demand for our products outside of the U.S.
Rentals revenue increased 3% from the prior year principally due to foreign currency translation.
Financing revenue increased 1% mainly due to foreign currency translation of 2% partially offset by lower revenue due to the reduction in equipment leasing volumes.
Support services revenue increased 1% from the prior year. A favorable impact from foreign currency translation of 4% was principally offset by the adverse impact on support services revenue of customers down-sizing their equipment.
Business services revenue increased 14% from the prior year. This growth was driven by higher revenue in mail and marketing services but was partly offset by lower transaction volumes in our management services business. Acquisitions and foreign currency translation contributed 9% and 2%, respectively, to this growth.
Costs and expenses
Cost of equipment sales increased as a percentage of revenue to 53.4% in the second quarter of 2008 compared with 46.9% in the prior year, primarily due to the prior year high margin equipment sales related to shape-based pricing.
Cost of supplies as a percentage of revenue increased to 26.1% in the second quarter of 2008 compared with 25.6% in the prior year, primarily due to the increase of lower margin international sales.
Cost of software as a percentage of revenue increased to 24.2% in the second quarter of 2008 compared with 23.9% in the prior year primarily due to a change in the mix of business.
Cost of rentals as a percentage of revenue decreased to 21.3% in the second quarter of 2008 compared with 23.9% in the prior year primarily due to lower depreciation costs related to the transition of our product line.
Cost of support services as a percentage of revenue increased to 59.5% compared with 55.7% in the prior year primarily due to higher fuel costs worldwide for our direct sales and service teams.
Cost of business services as a percentage of revenue was 78.5% for the second quarter of 2008 compared to 79.2% for the prior year. The successful integration of new sites and productivity improvements at our Mail Services operations were partially offset by higher costs associated with our acquisition in our Management Services operations.
Selling, general and administrative (â€śSG&Aâ€ť) expenses as a percentage of revenue decreased to 31.3% in the second quarter of 2008 compared with 31.6% in the prior year. This was largely due to the settlement of a legal matter in Europe in 2008 combined with the positive impacts from our transition initiatives. These favorable impacts were offset by higher credit loss expense in the U.S., the net legal recoveries in Europe in 2007, lower organic revenue growth, and a shift in the mix of our businesses.
Research and development (â€śR&Dâ€ť) expenses increased $6.1 million from the prior year as we continue to invest in developing new technologies and enhancing our products. R&D expenses as a percentage of sales increased to 3.3% in the second quarter of 2008 from 3.1% in the second quarter of 2007.
We recorded pre-tax restructuring charges and asset impairments of $18.8 million in the three months ended June 30, 2008. These charges relate primarily to a program we announced in November 2007 to lower our cost structure, accelerate efforts to improve operational efficiencies, and transition our product line. As a result of this program, we have targeted a net reduction of about 1,500 positions. About half of these reductions will be outside the U.S. During the second quarter of 2008, 449 terminations have occurred under this program. We expect to incur approximately $50 million of restructuring charges in 2008 associated with actions identified to date; however, we continue to evaluate additional actions in conjunction with this program. We expect to complete the majority of this program by the end of 2008. The majority of the liability at June 30, 2008 is expected to be paid by mid-2009 from cash generated from operations.
Results of Operations â€“ Six Months Ended June 30, 2008 compared to Six Months Ended June 30, 2007
Revenue by source
Equipment sales revenue decreased 6% compared to the prior year. Lower sales of equipment in U.S. Mailing were primarily due to the timing of revenue due to the postal rate case in the first half of 2007, which stimulated incremental sales during that period; the wind-down of meter migration, and weak economic conditions which resulted in an overall unfavorable impact on equipment sales of 13%. International revenue increased, principally due to the postal rate change in
the first quarter of 2008 in France, combined with higher equipment placements in the U.K., Norway and Asia. Foreign currency translation contributed a favorable impact of 5%.
Supplies revenue increased by 6% from the prior year. This increase was primarily driven by continued revenue growth in Europe as our customers continued migration to digital technology. Foreign currency translation contributed 4%.
Software revenue increased by 63% from the prior year primarily driven by acquisitions which contributed 41%, strong world-wide demand for our location intelligence and customer communication software solutions which contributed 17%, and foreign currency translation which contributed 5%.
Rentals revenue remained flat from the prior year. Favorable foreign currency translation of 3% was offset by lower revenue as our customers in the U.S. and Europe continue to downsize to smaller machines.
Financing revenue increased 3% primarily due to foreign currency translation of 2%.
Support services revenue increased 2% from the prior year. The favorable impact of foreign currency translation of 4% was partly offset by the adverse impact on support services revenue of customers down-sizing their equipment.
Business services revenue increased 15% from the prior year. This growth was driven by higher revenue in Mail Services and Marketing Services partly offset by lower transaction volumes for Management Services. Acquisitions and foreign currency translation contributed 8% and 2%, respectively, to this growth.
Cost of equipment sales as a percentage of revenue was 53.3% in the first six months of 2008 compared with 48.5% in the prior year, primarily due to the decrease in mix of higher margin equipment sales in the U.S.
Cost of supplies as a percentage of revenue increased slightly to 26.0% in the first six months of 2008 compared with 25.9% in the prior year.
Cost of software as a percentage of revenue increased to 25.3% in the first six months of 2008 compared with 24.8% in the prior year primarily due to a change in the mix of business.
Cost of rentals as a percentage of revenue decreased to 21.0% in the first six months of 2008 compared with 23.2% in the prior year primarily due to lower depreciation costs related to the transition of our product line.
Cost of support services as a percentage of revenue increased to 59.5% compared with 56.1% in the prior year primarily due to higher fuel costs worldwide for direct sales and service teams.
Cost of business services as a percentage of revenue was 78.5% for the six months of 2008 compared to 78.8% for the prior year. The successful integration of new sites and productivity improvements at our Mail Services operations was partially offset by higher costs associated with the acquisition in our Management Services operations.
Selling, general and administrative (â€śSG&Aâ€ť) expenses as a percentage of revenue increased to 31.4% in the first six months of 2008 compared with 30.9% in the prior year. This was largely due to lower organic revenue growth, a shift in the mix of our businesses, and higher credit loss expense in the U.S. Software, which is becoming a larger portion of our overall business, has a relatively higher SG&A expense ratio.
Research and development expenses increased $12.5 million from the prior year as we continue to invest in developing new technologies, enhancing our products, and the acquisition of MapInfo. Research and development expenses as a percentage of sales increased to 3.3% in the first six months of 2008 from 3.1% in 2007.
Charles F. McBride - Vice President, Investor Relations
Thank you, and good afternoon. Let me remind you that you can find today's earnings press release and the attached schedules on our website, at www.pb.com/investorrelations.
The forward-looking statements contained in this presentation involve risks and uncertainties and are subject to change based on various important factors including changes in international or national political or economic conditions, timely development and acceptance of new products, timing of potential acquisitions, mergers or restructurings, gaining product approval, successful entry into new markets, changes in interest rates and changes in postal regulations as more fully outlined in the company's Form 10-K annual report filed with the Securities and Exchange Commission.
Additionally, if there are any non-GAAP measures discussed during this call, such as adjusted earnings per share, earnings before interest and taxes or EBIT, free cash flow and organic revenue, there will be a reconciliation of those measures to GAAP measures located on our website.
Now, our President and Chief Executive Officer, Murray Martin, will start with an overview of the quarter. Murray?
Murray D. Martin - President and Chief Executive Officer
Good afternoon. Thank you for joining us for today's quarterly results announcement. I will share a few thoughts on our results and Mike will follow with the financial overview of the quarter. I will conclude with our focus for second half of the year and then we will open the line for questions.
We are pleased that we remain on target to deliver full year financial results consistent with our original guidance despite the difficult comparisons for the first half of the year and the challenging economic environment. During the quarter, revenue rose 3% and adjusted earnings per share were $0.69.
The benefits on focusing on expense management were reflected in another quarter of strong free cash flow at $205 million, which was 32% better than the $155 million we generated last year. As we did in the first quarter, we are pleased to again increase our free cash flow guidance range for the full year, this time by $50 million to $675 million to $750 million, which is now $75 million above our original guidance.
The quarter's results were characterized by continued momentum in Mail Services, improving trends in International Mailing, and in Management Services businesses, and performance in line with expectations in the core U.S. mailing operations. Growth in mail services continues to be driven by both presort and international mail services. Our strategy to expand and strengthen the Mail Services network continues to benefit our customers, in terms of enhanced discounts and postal processing.
In addition, the strategy benefits our business in terms of operating leverage and efficiency. We will continue to diversify the mix of mail processed in the U.S. and seek opportunities to expand our presence in international markets.
International Mailing continued to improve in line with our expectations, as we remained focused on growth, and enhancing operational efficiency. EBIT margin comparisons were favorably affected by an improved cost structure in Europe and the legal settlement during the quarter. We are making steady progress in completing the outsourcing of the financial and customer processes in Europe.
At the end of the quarter, we completed an examination of strategic alternatives for the U.S. Management Services business, and announced our decision to retain and to grow the operations. We have identified several opportunities to drive future growth and enhance profitability. The first is to continue to deploy several new document-related solutions, which have experienced strong early success with our customers. The second is to bring greater technology to our traditional mail and print management services. And the third is to drive further integration of end-to-end solutions that incorporate more of the full suite of Pitney Bowes' capabilities.
In addition, we have taken actions to reduce costs and enhance the productivity of the U.S. operations. The benefits of these actions in the U.S., improved the segment's EBIT margin during the quarter, but some of that improvement was offset by the costs associated with the acquisition of a French business services company in September of last year.
The performance of the U.S. mailing business was in line with our expectation. We anticipated the difficult comparisons in this business throughout the first half of the year because of last year's rate case activity, the lower leased space as well as lower meter migration opportunities in the first half of the year, continued economic weakness and market uncertainties that is deferring some customer decision making. Overall, we are pleased by our operating and financial performance in the midst of this challenging environment.
Before I discuss our outlook for the remainder of 2008, Mike will provide an overview of the company's financial results. Mike?
Michael Monahan - Executive Vice President and Chief Financial Officer
Thanks Murray. Revenue was $1.6 billion for the quarter, which was a 3% increase from the prior year. On an organic basis, revenue declined about 4%. Foreign currency contributed about 3% and acquisitions about 4% to revenue growth. For the quarter, revenue owed [ph] in the U.S. declined by 6% while revenue outside the U.S. grew by 29%.
International operations now represent about 33% of total revenue. Earnings before interest and taxes or EBIT for the quarter excluding charges relating to restructuring was $279 million. EBIT margin was 17.6% which was lower than the prior year on a comparable basis. The anticipated decline in our EBIT margin was primarily due to unfavorable comparisons to last year, when we had very strong sales of high margin Shape Base retrofit kits in U.S.
Similarly, the SG&A expense ratio was up this quarter when compared with the prior year, but was about the same as last quarter. This was largely due to reduced organic revenue growth, a shift in the mix of our businesses and higher credit loss expense in the U.S. versus last year.
When we add back depreciation and amortization, adjusted EBITDA for the quarter was $376 million. Net interest expense decreased by about $8 million compared with the prior year. The impact of higher average loan balances was more than offset by a lower average interest rate, which declined about 80 basis points from 5.3% last year to 4.5% this year.
The effective tax rate for the quarter was 34.1% which was about the same as last year. While we expect the tax rate for the full year to be approximately 34.5%, as previously noted the tax rate could vary between 34% and 35% during the course of the year.
Adjusted earnings per share for the quarter was $0.69 which was above the streets consensus of $0.67, but below our adjusted earnings per share for the same period last year. Shares outstanding this quarter were about 6% below what they were in last year's second quarter.
GAAP earnings per share for the quarter included $0.06 of charges for our previously disclosed transition initiatives, and also included a charge of $0.01 per share from discontinued operations which related to interest on possible future tax payments related to our former capital services business.
Free cash flow, as Murray mentioned, was $205 million for the quarter as compared with $155 million in the second quarter of last year. The strong free cash flow in the first half of the year, coupled with our continuing focus on the balance sheet and cash management for the remainder of the year, give us the confidence to again increase our free cash flow guidance for the year, this time by $50 million, to $675 million to $750 million.
During the quarter, we returned a $165 million to our shareholders through dividend and share repurchases. We used $73 million of cash during the quarter to pay dividends to shareholders, and repurchased $92 million of stock. We acquired 2.6 million shares during the quarter. Year-to-date, we have returned $419 million in cash to our shareholders in the form of dividends and share repurchases, compared with the $401 million in free cash flow we generated during the period.
Given overall market conditions, we will balance future share repurchases with other demands per cash during the remainder of year. We have a $134 million of share repurchase authorization remaining as of the end of the second quarter. Our debt was relatively unchanged during the quarter at about $4.9 billion, even as we continued to repurchase our shares as part of our previously announced program. About 74% of our debt is fixed rate and 26% is floating rate.
During the quarter, we reported about $90 million of cash charges in connection with the transition initiatives that we announced on November 15th last year, primarily related to anticipated severance associated with the elimination of positions.
On an after-tax basis, the charges amounted to about $12 million in the quarter, which is equal to $0.06 per share. As previously disclosed, we expect to realize about $70 million in benefits from the transition initiatives in 2008. We intend to reinvest a majority of these benefits in programs to enhance customer value and gain operational efficiency. We now have programs in place to achieve our target of $150 million of benefits in 2009. And, we still anticipate reinvesting about 50% of those benefits into the business.
So, that concludes my remarks. Now, Murray will provide some insight about our plans going forward.
Murray D. Martin - President and Chief Executive Officer
Thanks Mike. The quarter's performance despite tough comparisons and challenging economic conditions, underscores our confidence in our ability to deliver enhanced value to customers and to shareholders. As a result, we are reaffirming our 2008 revenue guidance of 6% to 9%. We are also reaffirming the range for our 2008 adjusted earnings per share from continuing operations of $2.80 to $2.90. And as mentioned earlier, we are increasing the range of our 2008 expected free cash flow to $675 million to $750 million.
We have continued to diversify our revenues by expanding into new adjacent market spaces that provide greater growth opportunities. In 2005, only 40% of our revenue came from areas outside of our traditional core mailing businesses. Today, revenue in these adjacent spaces has grown to about 50% of our total revenue and we expect that trend to continue.
Unlike any of our competitors, we provide a complete and diverse set of solutions for our customers' mail and document management needs. But, even as we expand, we remain focused on enhancing the customer experience and executing our strategies, while maximizing operational efficiency, free cash flow and expense management.
Now, it's time for us to open the line for questions.