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Why Xerox (XRX) Went Down Today

NEW YORK (TheStreet) -- Printer and copier company Xerox (XRX - Get Report) shed 10.3% after forecasting weaker-than-expected fourth-quarter guidance. The company dropped to $9.63 as of 3:40 p.m. EDT.

Xerox lowered its guidance for fourth-quarter earnings per share to a range of 28 cents to 30 cents a share, which includes 4 cents for restructuring and pension settlement expenses. Analysts surveyed by Thomson Reuters had expectations of 33 cents a share.

CFO Kathryn Mikells said headwinds continue to buffet its services division, impacting overall fourth-quarter profitability.

"We expect margin pressures to continue, with the year-over-year student loan compare being the most challenging of the year, resulting in about a $20 million decline in operating profit from that business unit," Mikells said during a conference call. "We expect services margins will decline from the relatively strong 11.2% from the fourth quarter 2012 to about 10% with full-year service margins a bit lower than 10%."

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The services division contributes 56% to total revenue, up from 51% in 2012.

"We've passed the tipping point on revenue but still have work to do on margin," said CEO Ursula Burns in the call. "We continue to focus on improving our cost structure."

For the third quarter, the Connecticut-based tech company reported earnings of 26 cents a share, 1 cent higher than analyst expectations, and revenue of $5.26 billion. Xerox also reduced its full-year earnings forecast to between $1.08 and $1.10 a share, from the range of $1.09 to $1.15 a share previously estimated.

TheStreet Ratings team rates Xerox Corp as a Buy with a ratings score of B. The team has this to say about its recommendation:

"We rate Xerox Corp (XRX) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, good cash flow from operations, expanding profit margins and growth in earnings per share. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

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