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Xerox reports Q3 earnings; raises guidance

Tuesday, October 26, 2010

Press release from the issuing company

Norwalk, Conn., – Xerox Corporation announced today third-quarter 2010 results that include adjusted earnings per share of 22 cents and $366 million in operating cash flow. Adjusted EPS excludes 5 cents from restructuring charges and amortization of intangibles, resulting in GAAP EPS of 17 cents.

“Building on our solid first-half results, we delivered steady revenue and earnings growth in the third quarter, keeping us on track to close the year strong,” said Ursula Burns, Xerox chairman and chief executive officer. “We’ve transformed our company into the world’s leading enterprise for business process and document management. In doing so, we’ve been successful in leveraging our brand, global scale and innovation to win multi-year contracts for business process, IT and document outsourcing. As a result, we are raising our guidance for both this year and 2011 to reflect the positive momentum we’re building in the marketplace and the efficiencies we’re driving across the business.

“During the third quarter alone, signings for service contracts grew 26 percent and pro-forma revenue from our BPO offerings was up 8 percent. Along with 13 percent growth in equipment sales, this progress fuels our healthy annuity stream for the long term,” she added.

Third-quarter revenue of $5.4 billion was up 48 percent including a 2 point negative impact from currency. On a pro-forma basis, with ACS in the company’s 2009 results, total revenue grew 2 percent or 4 percent in constant currency. Revenue from technology, representing the sale of document systems, supplies, technical service and financing of products, was up 3 percent or 5 percent in constant currency. Total install activity for Xerox equipment was up 20 percent, reflecting strong demand across all product segments. Revenue from services was up 2 percent on a pro-forma basis including a 1 point negative impact from currency, and represents the company’s business process, IT and document outsourcing offerings.

Third-quarter gross margin was 33.6 percent, and selling, administrative and general expenses were 20.9 percent of revenue. On a pro-forma basis, operating margin of 9.2 percent was up nearly one point.

The $366 million in operating cash flow in the third quarter contributed to $1.4 billion in cash flow year to date. The company reiterated its expectations to deliver $2.6 billion in operating cash and $2 billion in free cash flow for the full year. The fourth quarter is seasonally the highest cash quarter of the year for the company.

Xerox expects 2010 restructuring will be $120 million more than previously disclosed. The additional restructuring is related to acquisition synergies, adverse currency and cost-reduction activities. As a result, the company expects fourth-quarter GAAP earnings of 13 to 14 cents per share. Fourth-quarter adjusted EPS is expected to be 28 to 29 cents per share. Full-year GAAP earnings are expected to be 45 to 46 cents per share. Full-year adjusted earnings are expected to be 92 to 93 cents per share, up from 88 to 92 cents per share.

Xerox now expects 2011 full-year adjusted earnings per share of $1.05 to $1.10, up from 95 cents to $1.05 per share. The company also expects free cash flow of $2.1 billion and $1 billion in available cash for 2011.




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