Xerox cuts 2009 outlook as printer sales slump
Xerox Corp
Despite the weak forecast, analysts were encouraged by Xerox's plan to cut costs and pay down $1 billion in debt this year, and its solid cash flow which suggests the fall in demand may be near bottoming out.
Shares of Xerox rose 6.3 percent, fueled in part by its first-quarter results not being as bad as some feared: Profit beat analysts' lowered expectations while revenue was in line.
Xerox results indicate that the enterprise market remains under pressure, said Cross Research analyst Shannon Cross. However, we believe the company is carefully managing costs and maintaining market share which should support results going forward.
The Stamford, Connecticut, company, which has rebounded from fiscal troubles earlier this decade and improved market share, said it now sees second-quarter earnings per share in the range of 10 cents to 12 cents. Analysts had expected a profit of 14 cents, according to Reuters Estimates.
It also forecast 2009 earnings of 50 cents to 55 cents a share, down from its previous target of $1.00 to $1.25.
The outlook from the leading provider of digital printers and document management services came after it warned in late in March that the soft economy was prompting customers to delay purchases and print less.
During the first quarter, we saw an accelerated rate of decline in enterprise spending on technology, especially in Europe and developing markets, Anne Mulcahy, Xerox chief executive, said in a statement, adding the company plans to focus on managing costs and generating cash.
Xerox derives some 70 percent of its cash flow from the sale of supplies, financing and services to repeat customers. But the economic downturn means that some companies are slowing or shelving their plans to buy new equipment or order service.
INSTALLED BASE STILL GROWING
On a conference call with analysts, Mulcahy said that even though the number of pages printed by customers fell, Xerox's base of installed machines grew, which will benefit the company in the long term once business rebounds.
Page declines really are subject more to the economic conditions of things like less advertising, less financial deals, less people in the workplace, she said. As the economy improves to some extent there is a natural population to absorb the page increases with business volume.
Net income in the first quarter was $42 million, 5 cents a share, compared with a loss of $244 million, or 27 cents a share. The year-earlier period included a $491 million charge related to a securities settlement.
Wall Street analysts, on average, had expected a profit of 4 cents a share, according to Reuters Estimates.
Revenue at Xerox, whose rivals include Hewlett-Packard Co
Before Xerox late in March slashed its outlook, citing the effects of the weak economy, analysts had expected a profit of 17 cents a share.
Xerox shares rose 36 cents to $6.10 in midday trading on the New York Stock Exchange.
The shares have climbed about 32 percent since March 20, the day that Xerox warned its first-quarter results would fall short of company targets.
(Reporting by Franklin Paul; Editing by Dave Zimmerman and Brian Moss)
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