Xerox Corp said its quarterly profits got a boost from improving sales and cost cuts, and it delivered an optimistic outlook, sending its shares up 5.6 percent.

The office document management company, whose rivals include Hewlett-Packard and Canon <7751.T>, said revenue will be under pressure while the economy creeps toward a recovery. Still, Xerox, best known for its office printers, cited improving trends for overall revenue.

Xerox also said its takeover of Affiliated Computer Services Inc was on track, two days after European Union regulator approved the deal. The cash-and-stock deal, originally valued at about $5.5 billion, is Xerox's biggest and is the first by its new chief executive, Ursula Burns.

Xerox's fourth-quarter net income rose to $180 million, or 20 cents a share, from $1 million, or nil per share a year earlier.

Excluding special items, profit was 25 cents a share, which beat Wall Street analysts' expectations of 22 cents a share, according to Thomson Reuters I/B/E/S.

Revenue fell 3 percent to $4.22 billion, but outpaced analysts forecasts of $3.93 billion.

Fourth quarter revenue from sales of supplies and services -- including those that helps clients identify ways to trim their own costs -- was flat, but improved from an 11 percent drop in the third quarter.

Xerox's efforts to boost revenue have been slowed by a recession that has forced its customers to slow or cut orders of new equipment. But 70 percent of its cash flow comes from the sale of supplies, financing and services to repeat customers.

Analyst Shannon Cross of Cross Research noted that while equipment revenue in the fourth quarter was down 15 percent, that was an improvement over the decline of over 20 percent during the prior 3 quarters.

Its gross margin was 39.9 percent in the fourth quarter, an increase of two points from the prior year, as it trimmed expenses. It expects to continue cutting costs, and will take a related $250 million charge in the current quarter.

Xerox expects 2010 adjusted earnings per share of 75 cents to 85 cents. Analysts had expected a profit of 70 cents a share, according to Thomson Reuters I/B/E/S.

Shares of Xerox were up 50 cents to $9.39 in early trading on Thursday. As of Wednesday's closed on the New York Stock Exchange, the stock was up about 13 percent since its last quarterly report, and up about 20 percent in the past year.

(Reporting by Franklin Paul, editing by Maureen Bavdek and Derek Caney)