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Xerox Q2 Net Climbs 2.3% on Color Printing Sales

Press release from the issuing company

STAMFORD, Conn.--July 25, 2007-- Xerox Corporation announced today second-quarter 2007 earnings per share of 28 cents.
Total revenue of $4.2 billion grew 6 percent in the quarter. Post-sale and financing revenue - Xerox's annuity streams that represent more than 70 percent of total revenue - increased 7 percent. Both total revenue and post-sale revenue included a currency benefit of 2 percentage points as well as the benefit from Xerox's acquisition of Global Imaging Systems, which was completed in early May.
"Our results in the second quarter reflect the strategic importance of annuity and acquisitions flowing through to boost revenue and strengthen our position in the marketplace," said Anne M. Mulcahy, Xerox chairman and chief executive officer. "With the Global Imaging team now on board, we've increased our reach to U.S. small and mid-size businesses by 50 percent. At the same time, our investment in delivering the industry's broadest portfolio of color technology is paying off with the annuity from our color business increasing 16 percent. And, Xerox's global relationships with large customers are contributing to annuity growth from our consulting and managed services business.
"We are consistent in managing the business effectively - generating steady operational cash flow and containing costs while competing aggressively and expanding earnings to deliver value for shareholders. As a result, we delivered solid results in the first half of the year and are raising earnings expectations for the full year," she added.
A fundamental measure of Xerox's business is increasing the number of Xerox systems installed in customers' workplaces. This install activity generates sales of supplies and services that are expected to drive gains in post-sale revenue. During the second quarter, install activity increased 54 percent for the company's color multifunction devices that print, copy, fax and scan. In addition, activity grew for color production systems as more commercial printers and graphic arts customers installed Xerox digital presses to meet their clients' demand for personalization, book publishing and promotional marketing materials.
Price declines and the mix of products sold continued to put pressure on equipment sales revenue. Xerox reported a 3 percent increase in equipment sales revenue, which includes a 2-point benefit from currency.
Since the beginning of the year, Xerox has introduced 28 new products, 10 of which are color devices, doubling the 14 total product launches in 2006. More than two-thirds of Xerox's equipment sales revenue comes from products launched in the past two years.
Revenue from color grew 12 percent in the second quarter and now represents 38 percent of Xerox's total revenue, up 4 points from the second quarter of 2006. Xerox color presses produce the highest volume of pages in the industry and last year more than 30 billion color pages were printed on Xerox technology. In the second quarter, the number of color pages grew 30 percent, and now represent 12 percent of total pages, up 3 points from the prior year. Color performance excludes Global Imaging Systems.
Xerox services help businesses simplify work processes, manage office technology and in-house print shops, digitize paper files, create digital archives and much more. Through multiyear, multimillion dollar contracts, the company's document management services generated more than $1.6 billion in annuity revenue in the first half of the year, an 8 percent increase in post-sale revenue from services. Xerox recently signed its largest services contract to date, finalizing a seven-year deal with the United Kingdom's Department for Work and Pensions for a Xerox-led group to serve as the department's primary supplier of print and related services, supporting more than 2,000 DWP offices across the U.K.
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 2 percent in the second quarter including a 4 point currency benefit. Installs of production black-and-white systems declined 7 percent with initial demand for the newly launched Xerox Nuvera(R) EA and Xerox Nuvera 288 systems and continuous feed systems only partially offsetting declines in higher-end production printing. Production color installs grew 4 percent reflecting strong activity for the Xerox iGen3(R) Digital Production Press and DocuColor(R) 5000 and 8000 systems.
The company's acquisition of Global Imaging Systems gives Xerox access to about 200,000 new customers and adds 1,400 sales people to expand Xerox's footprint in the SMB market. Sales from Global Imaging supported second-quarter growth in Xerox's office business, which provides document technology and services for businesses of any size. Total office revenue was up 5 percent in the second quarter including a 2 point benefit from currency. Installs of the company's office black-and-white systems increased 7 percent primarily due to a 9 percent increase in activity for Xerox's mid-range line of multifunction devices. Installs for office color multifunction devices grew 54 percent in the quarter.
Gross margins were 40.3 percent, a less than one point decline from second quarter of 2006. Selling, administrative and general expenses were 25.7 percent of revenue, about the same as the prior year. Xerox generated operating cash flow of $388 million in the second quarter and closed the quarter with $870 million in cash and short-term investments.
Since launching its stock buyback program in October 2005, the company to date has repurchased about 117 million shares, totaling $1.8 billion of its $2.5 billion program.
Xerox expects third-quarter 2007 earnings in the range of 24-26 cents per share. The company increased its range of earnings expectations for full-year 2007 to $1.16 - $1.18.