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Sales worries drop Xerox shares
The printer and copy machine maker reported a higher-than-expected quarterly profit, but revenue fell short of analysts’ estimates.
July 2007: NEW YORK — Xerox Corp. posted a higher-than-expected quarterly profit Wednesday, but concerns about margins and the pace of equipment sales pushed its stock down more than 5 percent.Xerox (down $1.05 to $18.28, Charts, Fortune 500) shares had fallen as much as 8.5 percent earlier in the day, the largest single-day drop in more than three years for Xerox. The decline comes one day after the stock hit its highest level in seven years.Fortune’s Geoffrey Colvin sits down with Xerox CTO Sophie Vandebroek and discusses how she uses Second Life as a testing ground for future ideas.Jeff Embersits, an independent advisor to investment funds, said Xerox was overpriced and noted that its revenue gains in the second quarter had benefited from the acquisition of technology products provider Global Imaging Systems Inc.Without that boost, equipment sales would have once again been anemic, he said.”They are trudging along,” Embersits said, adding that he has rated the stock “sell.”
Xerox, the world’s biggest supplier of office printers, copiers and related serviceS, reported second-quarter net income of $266 million, or 28 cents a share, up from $260 million, or 25 cents a share, a year earlier.Analysts were expecting a profit of 27 cents a share, according to Reuters Estimates.Xerox, which has bet on introducing color printers along with lucrative long-term supply and service deals, said total revenue rose 6 percent to $4.21 billion from $3.98 billion. Analysts were expecting $4.19 billion.Xerox, whose competitors include Canon Inc. (down $1.08 to $57.80, Charts) of Japan, Heidelberg of Germany and Hewlett-Packard Co. (Charts, Fortune 500), has grabbed market share over the past two years with new digital office printers and large-scale presses.But its equipment revenue growth has lagged amid strong competition and pricing pressure on color laser printer sales to some distributors.Analysts also took issue with Xerox’s gross margins, which were 40.3 percent in the quarter, less than a 1-point decline from the second quarter of 2006.
Acquisition boost
Xerox bought Global Imaging for $1.5 billion in May. Global Imaging sells printers and copiers to small and mid-size businesses, and it added Xerox’s document-management products to its product line.Chief Financial Officer Larry Zimmerman said Xerox’s wider client base would help it reach better deals, as well as boost post-sale supplies and services.”We now have a huge tool (in Global) to help us with that growth,” he told Reuters in an interview. “We have been building post-sale, and as it builds up and Global takes effect, I think you are going to see sustained total revenue growth.”Xerox said it made progress in the second quarter, boosting long-term revenue growth with sales of color printers and high-end systems, which are routinely combined with lucrative long-term supplies and service contracts.Post-sale and financing revenue, which represents more than 70 percent of Xerox’s total, rose 7 percent. Equipment sales rose 3 percent.The company raised its expectations for full-year earnings to a range of $1.16 to $1.18 per share. Previously, Xerox had forecast $1.12 to $1.16.Analysts had expected 2007 earnings of $1.17 a share, according to Reuters Estimates.Xerox forecast third-quarter profit of 24 cents to 26 cents per share. The analysts’ average forecast was 26 cents, according to Reuters Estimates.”While strong … growth came from the acquisition, we think it is indicative of the strength of Xerox’ cash-generating model with management reinvesting cash in accretive acquisitions that drive the top and bottom line,” Cross Research analyst Shannon Cross said.Xerox shares were down more than 5.4 percent in afternoon trading on the New York Stock Exchange, after falling to a session low of $17.69. The stock is still up about 8 percent so far this year.
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