Xerox Reports Q3 Earnings: Profits Rise, Sales Slip

Press release from the issuing company

STAMFORD, Conn.--Oct. 23, 2003-- Xerox Corporation reported today third-quarter earnings of 11 cents per share, delivering another quarter of equipment revenue growth driven by increased sales of production color and office color systems as well as improvements in the company's developing markets operations. Equipment sales grew 5 percent in the third quarter including a 3 percentage point currency benefit. Improving trends in Xerox's developing markets continued with DMO equipment sales growing 33 percent year over year. Total revenue for the third quarter was $3.73 billion, a decline of 2 percent from the third quarter of 2002 including a 3 percentage point currency benefit. The decrease is due to declining post-sale revenue from the company's older light lens technology and its exit from the small office/home office business. Total third-quarter revenue from the company's targeted growth areas - office digital, production digital and value-added services - grew 6 percent year over year and represent about 70 percent of the company's revenue. "Xerox has reinvented itself into an aggressive technology leader with competitively priced products that meet the needs of offices small and large, digital presses that are creating new markets in commercial printing, and document-management services that drive productivity improvements for our customers," said Anne M. Mulcahy, Xerox chairman and chief executive officer. "Our investments are generating returns through increased customer demand for the Xerox brand and share gains in targeted markets." Equipment installs for production publishing black-and-white systems grew 14 percent in the third quarter due to the continued success of Xerox's industry-leading DocuTech series. Production color installs grew 8 percent led by demand for the Xerox DocuColor iGen3 and DocuColor 6060 digital color presses. According to the latest independent industry reports for first-half 2003, Xerox continues to hold the No. 1 U.S. and European market share positions for monochrome and color production publishing/printing. Last month Xerox strengthened its industry-leading line of digital color presses by launching the DocuColor 5252, which is 18 percent faster than its predecessor but offered at the same price. "Color continues to be a key driver of Xerox's growth strategy as the high volume of pages printed on Xerox's color systems flows through to post-sale revenue," added Mulcahy. "With the industry's broadest portfolio of color products, we grew color revenue by 15 percent in the third quarter and color equipment sales now represent more than 25 percent of Xerox's total equipment revenue. This is a clear indication of the strong foundation we're building for future revenue growth." In the office, third-quarter equipment installs of black-and-white digital systems grew 28 percent as demand accelerated from small and medium-sized businesses for Xerox's new competitively priced digital copiers and multifunction devices. Office color multifunction installs increased 49 percent due to the success of Xerox's DocuColor 3535, WorkCentre Pro 32 and WorkCentre Pro 40 color systems. For the first half of 2003, Xerox maintained its U.S. and European market share leadership positions in this growing color market. The company expanded its office portfolio last month through the launch of two new Phaser printers and two additional WorkCentre multifunction systems. Third-quarter gross margins were 41.1 percent, consistent with seasonal trends. Selling, administrative and general costs were flat including an adverse impact from currency of 3 percentage points. Xerox reported third-quarter operating cash flow of $67 million, which includes $604 million in funding to its various worldwide pension plans. The company's worldwide cash position was $2.3 billion as of September 30. "Despite a tough business climate, we are quite encouraged by our progress this year and confident in the business decisions we've made to grow installs in key markets, generate significant operating cash flow, and strengthen our global operations," added Mulcahy. "We expect consistent performance in the fourth quarter. Growth in equipment sales along with the benefits of our operational improvements will offset any continuing economic weakness and yield strong full-year results."