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Xerox Reports Third-Quarter 2012 Earnings

Xerox (NYSE: XRX) announced today third-quarter 2012 adjusted earnings per share of 25 cents, which excludes 4 cents related to the amortization of intangibles, resulting in GAAP earnings of 21 cents per share.

In the third quarter, total revenue of $5.4 billion was down 3 percent or down 1 percent in constant currency.

Revenue from the company’s services business was up 6 percent in constant currency, partially offsetting a 7 percent constant currency decline in technology revenue, which represents the sale of document systems, supplies, technical service and financing of products.

During the third quarter, upfront investments in new services contracts as well as the impact of government budgetary pressures on existing contracts led to an 8.6 percent operating margin, down 1 point from third-quarter 2011. Gross margin was 31 percent, and selling, administrative and general expenses were 19.4 percent of revenue.

“Our third-quarter performance aligns with shifts in our business as services become a larger proportion of our revenue, and reflects the dynamics of a challenging economy that is creating cost pressures for large enterprises and governments,” said Ursula Burns, Xerox chairman and chief executive officer.

“Steady growth in services is consistent with our strategy. Scaling our offerings in business process, IT and document outsourcing gives us a diversified portfolio that helps mitigate declines in equipment sales and supplies,” she added. “In our technology business, we benefit from healthy operating margins that support our bottom-line performance. We’re accelerating growth in print-related markets that are expanding, like serving more small and mid-size businesses through indirect channels, and we’re maintaining our profitable leadership in markets that are contracting.”

In the company’s services business, constant currency revenue from business process outsourcing grew 9 percent, IT outsourcing grew 6 percent and document outsourcing, which includes the company’s leading managed print services offerings, was up 4 percent.

“While we’re pleased with the continued revenue growth trajectory in services, the profitability of a few contracts has been hampered by constraints in government spending, delaying implementation on committed projects that required our upfront investments,” said Burns. “We believe this is a short-term consequence of current macro and political conditions. But, we remain cautious, and we are focused on reducing costs to absorb the impact and improve margins while investing in key areas of growth and delivering strong cash flow.”

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