(XRX) Xerox’s Earnings Report Outdoes Estimates

Xerox Corporation (XRX) has posted net income of $221 million or 25 cents per share (before special items) for the fourth quarter of the year. This was higher than the Zacks Consensus Estimate of 22 cents per share. However, net income decreased from $265 million or 30 cents per share (before special items) in the year-ago quarter.

Total revenue declined 3% to $4.2 billion due to economic weakness. Production revenue decreased 4% to $1.3 billion; Office revenue 2% to $2.4 billion; and Other revenue 10% to $545 million.

Post-sale and financing revenue were flat or went down 4% in constant currency. Equipment sale revenue shrank 11% or 15% in constant currency. Gross margin was 39.9% in the quarter, an increase of two percentage points from the prior year quarter.

Annual Results

Xerox reported a net income of was $526 million or 60 cents per share (before special items) for 2009. This is also higher than the Zacks Consensus Estimate of 57 cents per share. Total revenue went down 14% to $15.2 billion.

Financial Position

Xerox ended the year with a cash balance of $3.8 billion. Long-term debt increased to $8.3 billion from $6.8 billion in 2008. Long-term debt-to-capitalization ratio stood at 54% as of December 31, 2009.

Xerox generated $2.2 billion of operating cash flow in 2009, exceeding its full-year expectations by $500 million. Capital expenditures reduced drastically to $95 million from $206 million in the previous year.


Xerox anticipates adjusted EPS to lie in the range of 11–13 cents for the first quarter of 2010. Including the impact from acquisition of Affiliated Computer Services, the company expects adjusted EPS to be in the range of 75–85 cents for 2010. These are compatible with the Zacks Consensus Estimates.

Xerox Corporation — headquartered in Norwalk, Connecticut — is engaged in the development, manufacture, marketing, servicing and financing of document equipment across the world. It also provides software and workflow solutions and services worldwide.

Innovation in the managed print services and efficient cost management are some of the positive factors associated with the company. However, intense competition from its peers including Canon (CAJ), Hewlett-Packard (HPQ) and Lexmark (LXK) as well as escalating amount of debt are detrimental to its future. Therefore, we continue to recommend the shares of the company as Neutral.

Zacks Investment Research

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