Xerox shares see sharp drop after company's Q3 report

By ANDREA DECKERT - 10/24/2013 7:50:31 AM

Shares of Xerox Corp. were down roughly 10 percent midafternoon Thursday after the company reported its third-quarter results, in which earnings beat Street estimates, but projected fourth-quarter earnings failed to meet analyst expectations.

Sales were relatively flat as the company’s services business continued to grow and its document technology business saw its revenue declines begin to stabilize.

Shares of Xerox (NYSE:XRX) were trading midday at $9.63, down from Wednesday’s close of $10.73.

The stock crossed below Xerox’s last reported book value, which is defined as common shareholder equity per share. Its 52-week range is $11.15 to $6.10, the latter of which Xerox reported on Nov. 16, 2012.

The company Thursday morning reported net income attributable to Xerox of $286 million compared with $282 million a year ago. Excluding 4 cents a share related to the amortization of intangibles, earnings per share were 26 cents. Earnings per share for last year’s quarter were 21 cents.

Revenue for the quarter was some $5.3 billion, nearly the same as a year ago.

Analysts polled by Thomson Reuters had expected Xerox to report sales of nearly $5.3 billion and earnings per share of 25 cents.

“This quarter shows how we are successfully capturing the benefits of a diversified portfolio,” said Ursula Burns, chairman and CEO, in a statement. “Within services we continue to focus on improving our cost structure while maintaining investments in areas where we see opportunity, such as health care. In document technology, revenue declines stabilized with continued good profitability.

“We continue to see demand from small and midsize businesses in the United States, and positive trends in the high end of our business.”

Revenue from the company’s services business totaled $2.9 billion, up 3 percent, and represents 56 percent of Xerox’s business. The company’s document technology sales totaled nearly $2.2 billion — down roughly 4 percent — and makes up 41 percent of Xerox sales.

During the third quarter, Xerox recorded net restructuring and asset impairment charges of $35 million, which included roughly $38 million of severance costs related to headcount reductions of some 2,150 employees, primarily in North America.

Worldwide employment was roughly 141,900 at Sept. 30 and decreased by some 5,700 positions from year-end 2012, due to restructuring-related actions and attrition outpacing hiring and acquisitions, the company reported.

Xerox ranked first on the most recent Rochester Business Journal list of manufacturers with roughly 6,100 local workers.

The company generated $961 million in operating cash flow in the quarter, and anticipates full-year cash flow towards the higher-end of its projected $2.1 billion to $2.4 billion range.

Xerox expects fourth-quarter earnings from continuing operations of 24 to 26 cents a share and adjusted earnings per share of 28 to 30 cents. Its guidance includes approximately 2 cents a share of restructuring charges and 2 cents from higher pension settlement expenses.

The company estimates are lower than what analysts were predicting.

Analysts polled by Thomson Reuters expected Xerox to report fourth-quarter earnings per share of 33 cents.

The company expects full-year earnings per share from continuing operations in the range of 93 to 95 cents, and adjusted earnings per share of $1.08 to $1.10

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