Xerox expects better profits in 2009 despite dip in business
On one hand, Xerox Corp.’s vital signs continue to decline as the recession hammers its books, with profits down by half. On the other, the company is doing better than either Xerox or Wall Street had hoped.
And the Rochester area’s fourth-largest employer on Thursday boosted projections for its overall financial performance in 2009. As a result, Xerox stock gained 31 cents, or 4 percent, to finish the day at $8.03 after the company announced third-quarter results.
CEO Ursula Burns said the economic downturn has customers remaining hesitant to spend on new technology. But because of cost-cutting steps, the document and imaging company now projects a full-year profit of 55 cents to 57 cents per share, up from previous estimates of 50 to 55 cents.
For the current fourth quarter, Xerox expects a profit of 20 to 22 cents per share — not counting any expenses related to its pending takeover of Dallas-based Affiliated Computer Services Inc.
In a phone call with Wall Street analysts, Burns and other executives spent much of the time pitching the case for the ACS purchase. Since Xerox announced the acquisition plans on Sept. 28, investors registered their pessimism by driving down Xerox shares from more than $9.
With ACS, Xerox is projecting sales of $22 billion in 2010 and earnings per share of 75 to 85 cents, growing to $25 billion and $1.10 to $1.20 per share by 2012. The company also expects to save hundreds of millions of dollars in the first three years through reduced labor costs, consolidated business structures and use of each other’s products.
Xerox Chief Financial Officer Larry Zimmerman declined to give specific details of where the companies are looking at work force reductions.
However, Burns said, “It’s not all about removing people from the process. It’s also about having the people working these processes be more efficient and effective.”
Xerox employs about 6,900 in the Rochester area and 54,000 globally.
The woes in the third-quarter results were similar to what the company said about the second quarter — a slowdown in the business world lowered demand for supplies, customers delayed spending on big-ticket technology and had trouble accessing credit.
For the quarter that ended Sept. 30, the document and imaging company posted revenue of $3.68 billion, 16 percent less than in the July-September period in 2008. Net income fell 52 percent to $123 million, or 14 cents per share, compared with $258 million, or 29 cents.
Analysts surveyed by Thomson Reuters had expected, on average, earnings of 12 cents per share and revenue of $3.63 billion, so Xerox beat both forecasts. Xerox earlier this year had said it expected a third-quarter profit of 10 to 12 cents a share, so it beat its own forecast, too.
“It appears to be more of the same,” said Bill Shaheen, CEO of Rochester wealth management firm Whitney & Co. “We have seen over the past years’ earnings reports that they are very good at expense reductions but have more difficulty increasing revenues.
“So I believe it’s more important than ever to hit the ground running with the ACS purchase to expand the revenue stream. Continuing to reduce expenses will be difficult at best.”
