Xerox Slumps After Profit Warning - TheStreet

Xerox Slumps After Profit Warning

The stock is down about 25% after reporting that a lackluster September will lead to a 10%-12% decline in its diluted earnings per share.
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Xerox Corp.

(XRX) - Get Report

today warned Wall Street that it will report "disappointing" profit figures for the third quarter because of poor revenue in the U.S. and Europe.

Investors immediately punished the company, sending its stock plunging 11 3/4 , or 27%, to 31 in early

New York Stock Exchange

trading.

Xerox, which is based in Stamford, Conn., said a lackluster September will lead to a 10%-12% decline in its diluted earnings per share, or about 5 to 7 cents, from the 53 cents it posted in the 1998 third quarter. A consensus of analysts surveyed by

First Call/Thomson Financial

had been projecting earnings of 58 cents per share in the latest quarter.

Daniel R. Kunstler, an analyst with

J.P. Morgan Securities

who has a buy on the company, said Xerox faced a "double whammy" because its move toward industry-oriented sales seemed to be moving slowly and it was hit by economic troubles in Brazil, which depressed sales there.

"I think they are going in the right direction, but right now it's not working," Kunstler said. "What we'd like to know is time -- how much time is this going to take?"

Steven M. Milunovich, an analyst with

Merrill Lynch Global Securities

, said Wall Street will give Xerox another two to three more quarters to realize benefits from changes to its sales force, an effort the company continues to undertake. If Xerox is not enjoying improved results at that point, it will indicate there is a clear problem within the company's operation, he said.

But Milunovich believes Xerox continues to face a larger, more fundamental problem.

"What's the growth potential of copiers vs. printers?" asked Milunovich, who has a buy rating on the stock. "Can this company grow at double-digit revenue rates like it expects to do?"

In addition to the earnings shortfall, Xerox cited increasing competitive pressures, which affected operating margins, along with the continued currency devaluation and economic weakness in Brazil, while sales in Japan were also lower than expected.

"Today's announcement is clearly disappointing," Rick Thoman, Xerox president and chief executive officer, said in a statement.

Thoman added that the company just needs more time to begin achieving better revenue and earnings results. The company intends to announce its third-quarter results on Oct. 18.