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Xerox Reports 3Q earnings, Color Grows 5%

Friday, October 24, 2008

Press release from the issuing company

NORWALK, Conn., Oct. 23, 2008 – Xerox Corporation announced today third-quarter earnings of 29 cents per share.

Total revenue of $4.4 billion grew 2 percent in the quarter, including a 2 point benefit from currency.  Post-sale revenue, which represents more than 70 percent of the company's total revenue, increased 3 percent.  Equipment sale revenue was down 3 percent.  Both post-sale and equipment sale revenue included a 1 point currency benefit.

"Our results this quarter reflect the value of a business model that delivers solid operating cash flow through a profitable annuity stream," said Anne Mulcahy, Xerox chairman and chief executive officer.

"In this tough business environment, revenue remained stable this quarter – the benefit of investments in expanding our reach to small and mid-size businesses. This focus led to strong performance from our developing markets and Global Imaging operations and helped to offset the economic challenges affecting U.S. large enterprises, especially for our high-volume production systems," she added. "The resulting shift in revenue mix does put pressure on our gross margin.  To better align our operations with these changes, we're accelerating actions to reduce our cost base and drive operational improvements across the board, giving us more flexibility in our business and in this unpredictable economy."

Xerox generated operating cash flow of $260 million in the third quarter bringing year-to-date cash flow to $754 million.  Xerox closed the quarter with $873 million in cash and cash equivalents.

"We're confident in the strength of our financial position and the flexibility we have to manage our business successfully through today's challenges and for the long- term value of our shareholders," Mulcahy said.

Xerox's developing markets continued to deliver strong growth in the third quarter with revenue up 15 percent, reflecting positive performance in all regions.

Revenue from color grew 5 percent in the third quarter and represents more than 40 percent of Xerox's total revenue.  Color pages were up 27 percent and now represent 17 percent of total pages printed on Xerox technology.  Color results exclude the benefit from Global Imaging Systems.

Xerox document management services help businesses reduce costs by simplifying work processes, managing office technology and in-house print shops, converting paper files to digital and much more.  Through the third quarter of this year, Xerox Global Services generated $2.6 billion in annuity revenue, up 6 percent from the prior year.

Xerox's production business provides commercial printers and large enterprises with high-speed digital printing and services that enable on-demand, personalized printing.  Total production revenue decreased 1 percent in the third quarter, including a 2 point benefit from currency, largely due to a slowdown in U.S. activity. Installs of production black-and-white systems declined 11 percent and installs of production color devices were up 4 percent in the quarter driven by early demand for the company's new production systems, the Xerox iGen4 Press and the Xerox 700 Digital Color Press, both of which were available worldwide beginning in September.

Through expanded channels of distribution and competitive offerings for businesses of any size, Xerox continues to drive demand for color in the office with installs of color multifunction systems up 23 percent from the prior year.  Installs of the company's black-and-white multifunction devices increased 15 percent.  Total office revenue was up 3 percent in the third quarter, including a 2 point benefit from currency.

The effect of accelerated growth from developing markets and for products that serve the SMB market along with slower U.S. demand for high-volume production systems resulted in a third-quarter gross margin of 39.2 percent, down about one point from the prior year.  Selling, administrative and general expenses as a percent of revenue at 26 percent increased about a half point year over year as the company maintained its investments in marketing and sales coverage. The combined impact of margin pressure and selling investments was offset in the third quarter by a benefit from tax settlements.

The company said it will take a pre-tax restructuring charge of approximately $400 million or 31 cents per share in the fourth quarter to accelerate its cost-reduction activities on a global basis.  Excluding the charge, Xerox expects fourth quarter 2008 earnings in the range of 34 to 36 cents per share.

Commenting on next year's earnings expectations, Mulcahy said, "We believe the operational efficiencies we'll gain from our restructuring actions in the fourth quarter position us well to deliver double-digit earnings growth in 2009."




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