Valley Forge, Pennsylvania-April 26, 2001-IKON Office Solutions (NYSE:IKN) today announced results for the second fiscal quarter ended March 31, 2001. Earnings for the second quarter were $16.7 million, or $.12 per share. For the same period in 2000, earnings were $.17 per share, or $.23 per share including a one-time gain from insurance proceeds. Revenues for the second quarter of fiscal 2001 were $1.36 billion, comparable to the same period in 2000. Without the negative effect of foreign currency, revenue growth for the second quarter of fiscal 2001 would have been 1%.
"Our revenues and earnings results were solid this quarter, despite a tough competitive and economic climate," stated James J. Forese, Chairman and Chief Executive Officer. "Earnings of $.12 per share were in line with our expectations and reflect the ongoing investments we are making to continue to position the Company for stronger, long-term returns. We feel that these ongoing investments, which have impacted our earnings, are a necessity for long-term revenue growth and operating margin improvement. In addition, our balance sheet and cash flow position remain strong. During the second quarter, we achieved greater asset productivity as evidenced in our days sales outstanding and inventory turn measurements, and based on first half results, our free cash flow outlook for the year remains on target at $170 - $185 million."
Revenues of $1.36 billion included continued growth in the Company's targeted markets, including outsourcing and the high-volume, Segment 5 and 6 copier/printer equipment for the production market. IKON's principal outsourcing offering, facilities management, secured its fifth sequential quarter of double-digit growth. However, revenue growth was offset by declines in other markets that the Company has de-emphasized, such as low-margin technology hardware.
"Our high-end equipment sales and outsourcing results are representative of IKON's response to our customers' needs for a partner that can provide a host of services on a strong equipment platform," stated Mr. Forese. "With more complex technologies and a greater variety of document management applications available from many vendors today, IKON's multi-vendor product portfolio, our proven technical service support, and our array of integrated outsourcing offerings serve to make IKON a valuable partner for any customer."
Net Sales, which include the sale of copier/printer equipment, supplies, and technology hardware, declined 0.5% from the prior year. Positive growth in copier/printer equipment sales was offset by the anticipated decline in certain technology hardware. Copier/printer equipment sales were led by the placement of new, higher-volume digital technologies not available in the prior year, primarily the Ricoh Aficio 850 and 1050 and the Canon imageRUNNER 110. Gross profit margin on Net Sales was slightly up from the prior year, reflecting a mix of increased competitive pressures offset by the benefit of less low-margin technology hardware in current year results.
Service & Rentals, which include revenues from the servicing of copier/printer equipment, outsourcing, technology services, and rentals, declined 1.5% from the prior year. Growth in outsourcing was offset by declines in equipment service and rental revenues, as the Company's overall Service & Rentals revenue base transitions to higher-end, digital technologies and outsourcing. Service & Rentals gross profit margin remained stable from the prior year reflecting excellent improvement in the margins associated with equipment service.
Finance Income generated by the Company's captive leasing organizations grew 15.9% from the prior year reflecting the Company's ongoing success in utilizing leasing as a competitive differentiator. Gross profit margin on Finance Income was essentially unchanged from the prior year.
Operating margins of 3.6% improved sequentially but were down from the prior year primarily due to increased Selling and Administrative expenses. Selling and Administrative expenses have increased as the Company accelerated certain targeted investments designed to improve its infrastructure and competitive edge long-term. These investments include the continued development of e-services such as Digital Express 2000; expanded sales coverage and training directed toward integrated solutions and major accounts; the Company's comprehensive e-commerce initiative; and additional infrastructure technology costs to support the Company's ongoing productivity programs. The Company's productivity programs are designed to generate continued savings over the next 18 to 24 months.
"Our outlook for the long-term continues to be positive," stated Mr. Forese. "However, we realize that today's economic climate dictates a more conservative program, as companies focus on the quality of their balance sheets, cash flows, and cost structures. Accordingly, while we will remain committed to continuing our investments that have facilitated the great progress IKON has made in converting to an integrated, services-oriented operating company, for the second half of our fiscal year we will be taking more aggressive actions to minimize our costs.
"For the third quarter, we expect our earnings per share to show sequential improvement, but a decline from the prior year (excluding special items) due to the higher level of investments this year," continued Mr. Forese.
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