By Steven Schnoll May 3, 2005 -- Xerox Corporation (NYSE: XRX) announced first quarter results today. The company reported revenues of $3.771 million compared to $3.827 million in the first quarter of 2004. Net earnings from continuing operations were up 18% to $210 million, or $0.20 per share, from $165 million, or $0.17 per share, from the comparable quarter in 2004. Revenue from production color grew 20% in the quarter, primarily from accelerated growth in iGen3 and DocuColor 8000. Xerox CEO, Anne Mulcahy, said, “Our profit performance in the first quarter met the high range of our expectations through increased gross margins and operational improvements.” Topics of this summary: Quarter Highlights Segment Performance Guidance Raine Radar Q & A Quarter Highlights Nuvera, a high-end monochrome production system, launches in North America WorkCentre C2424 Solid Ink multi-function device launches Additional product launches in the Office and Production Color Portfolios planned for the second quarter Xerox opens a 100,000 square foot showcase of their digital production technology in Rochester, NY Segment Performance Xerox reported positive revenue in the quarter for three growth areas: Digital Office with sales of $1.732 billion, an increase of 3%; Digital Production with sales of $1.017 billion, an increase of 2%; and Value Added Services with sales of $63 million, an increase of 23%. These three areas now account for 75% of total company revenue. The traditional copier base of Xerox (Light Lens/SOHO) saw a decrease of 42% during the quarter with $166 million in sales. Sales in the developing market segment were down 2% to $412 million from $420 million last year, with Brazil being the primary problem market. Guidance Xerox anticipates meeting the previously stated Q2 earnings per share of $0.21 to $0.24 with full year range of $0.90 to $1.00 per share. The company believes the second half will be stronger than the first based on the rollout of the new Nuvera and C2424 product lines. Raine Radar Digital production is over $1 billion in sales and growing, representing 27% of gross revenue. Profitability has also improved from last year. Production color revenue is growing at 20% and production color pages are growing 34% year over year. Given these numbers, it was interesting how few questions were asked about these offerings during the call. Xerox is working hard to create a market for its digital production products, and so far it seems to be working, but they aren’t alone. Kodak and HP are working toward the same goal and investing a lot of dollars into the same market basket in the process. What is important to realize is that digital production, which translates into document management, is more than just a positive number on the Xerox income statement. This technology has the potential to make a substantial impact on companies of all sizes and industries, which is one reason Anne Mulcahy is optimistic about the future of Xerox. Q & A January 2005 proved to be extremely weak in sales, mostly due to delays in big deals in the Office segment. Color will have a large influence on multi-function device (MFD) sales going forward. The company experienced supply constraints during the quarter due to high demand for certain products. Much of Post Sales revenue decline was in paper sales. According to Xerox, the equipment market slowed overall during the Q1. The company gained or held market share in B/W, color was healthy, and the company expects to see a positive impact in office color during the 2nd half of year. Xerox expects mid to high single digit improvement in equipment by the end of 2005. The pricing environment is stable in office, but production color is seeing more competition, although it is not yet a major consideration. Second half product releases and expected growth in the Developing Markets and Post Sales businesses should make meeting 2005 expectations possible. The driver for color growth is the reduction of color premium as compared to the cost of B/W. Color growth should continue in double digits in the near term based on the strength of new color product launches. Xerox is very pleased with results in graphic arts, penetration in commercial print, and its partner relationship with Adobe. The company has no plans for a spike in advertising expenditures for 2005.