Xerox 4Q profit falls on higher restructuring charge
Press release from the issuing company
STAMFORD, Conn.--Jan. 23, 2007-- Xerox Corporation announced today fourth-quarter 2006 earnings per share of 22 cents, including a restructuring charge of 16 cents per share. This compares to fourth-quarter 2005 earnings per share of 27 cents, which included a 5 cent restructuring charge. Excluding restructuring, Xerox delivered adjusted EPS of 38 cents, an increase of 19 percent over fourth-quarter 2005 adjusted EPS of 32 cents.
"Xerox delivered solid performance in the fourth quarter, contributing to another year of double-digit earnings growth," said Anne M. Mulcahy, Xerox chairman and chief executive officer.
"It was a year of steady improvements across the board," she added. "We grew revenue through stronger annuity and expanded our industry-leading portfolio of products and services. We acquired companies that broaden our share of the fast-growing document management and production color printing markets. We generated $1.6 billion of operating cash flow, returned to investment grade and bought back $1.1 billion of Xerox shares. As important, we managed our operations efficiently, giving us the flexibility to compete effectively while delivering value for shareholders."
Total revenue of $4.4 billion grew 3 percent in the fourth quarter. Post-sale and financing revenue, which represents about 70 percent of Xerox's total revenue, increased 5 percent, largely driven by 7 percent post-sale growth from digital systems. Both total revenue and post-sale revenue included a currency benefit of 3 percentage points.
"Our annuity stream is fueled by increasing sales of Xerox color systems, which generated more than 30 billion color pages last year, and accelerating demand for Xerox's consulting and outsourcing services," said Mulcahy. "This focused strategy yielded strong results in the fourth quarter. Post-sale revenue from color was up 18 percent and post-sale revenue from global services grew 8 percent. Total color revenue increased 13 percent and signings for document management services were up more than 15 percent."
Color now accounts for about 37 percent of Xerox's total revenue, up 3 points from the fourth quarter of 2005. The number of pages printed on Xerox color systems grew 36 percent in the fourth quarter. And, color now represents 10 percent of total pages, a year-over-year increase of 2 points.
Equipment sale revenue was down 1 percent in the fourth quarter including a 3 point benefit from currency. However, strong install growth of key products is expected to drive future gains in the company's post-sale revenue. Xerox's investment in innovation led to the launch of 14 products in 2006 that together earned 208 industry awards. The company expects to more than double its number of product announcements this year. About two-thirds of Xerox's equipment sales come from products launched in the past two years.
Xerox's production business provides commercial printers and document-intensive industries with high-speed digital printing and services that enable on-demand, personalized printing. Total production revenue increased 3 percent in the fourth quarter including a 4 point currency benefit. Installs of production black-and-white systems declined 6 percent with growth in light production only partially offsetting declines in higher-end production printing. Production color installs grew 40 percent, reflecting accelerated activity for the Xerox iGen3 Digital Production Press and continued strong demand for the DocuColor 5000 as well as the DocuColor 240/250 multifunction system.
Xerox's office business provides document technology and services for businesses of any size. Total office revenue was up 1 percent in the fourth quarter including a 3 point currency benefit. Installs of office black-and-white systems were up 13 percent driven by 13 percent growth from Xerox's desktop devices like the WorkCentre 4150, and 11 percent growth in its mid-range line of multifunction devices. In office color, installs of multifunction systems were up 39 percent reflecting strong demand for the color WorkCentre family. In November, Xerox launched three more products for small businesses including the Phaser 6110, its most affordable desktop color laser printer at a starting price of $249. Xerox said it will launch several more office color systems next month.
The company also cited continued improvement in its developing markets operations. Total revenue grew 8 percent in DMO.
Gross margins were 41.1 percent, about flat from fourth quarter of 2005. Selling, administrative and general expenses were 23.3 percent of revenue, a year-over-year improvement of 1.3 points and the lowest percentage of revenue in more than 15 years.
Xerox generated operating cash flow of $720 million in the fourth quarter and ended the year with $1.5 billion in cash and short-term investments. Also during the fourth quarter, Xerox closed on the $54 million cash acquisition of XMPie, the leading provider of software for personalized, multimedia marketing campaigns.
Since launching its stock buyback program in October 2005, the company to date has repurchased about 100 million shares, totaling $1.5 billion of its $2 billion program.
Xerox expects first-quarter 2007 earnings in the range of 21-23 cents per share.
Full-Year 2006 Results
-- Net income of $1.2 billion
-- EPS of $1.22, compared to full-year 2005 EPS of 94 cents
-- Adjusted EPS of $1.05, an increase of 17 percent from full-year 2005 adjusted EPS of 90 cents
-- Total revenue of $15.9 billion, an increase of $194 million or 1 percent from full-year 2005
-- Operating cash flow of $1.6 billion
-- Year-end cash and short-term investments balance of $1.5 billion
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