Xerox (XRX)

Q3 2011 Earnings Call

October 25, 2011 10:00 am ET


Luca Maestri - Chief Financial Officer and Executive Vice President

Ursula M. Burns - Chairman and Chief Executive Officer


Keith F. Bachman - BMO Capital Markets U.S.

Richard Gardner - Citigroup Inc, Research Division

Benjamin A. Reitzes - Barclays Capital, Research Division

Mark A Moskowitz - JP Morgan Chase & Co, Research Division

Chris Whitmore - Deutsche Bank AG, Research Division

Ananda Baruah - Brean Murray, Carret & Co., LLC, Research Division

Deepak Sitaraman - Crédit Suisse AG, Research Division

Bill C. Shope - Goldman Sachs Group Inc., Research Division



Good morning, and welcome to the Xerox Corporation Third Quarter 2011 Earnings Release Conference Call hosted by Ursula Burns, Chairman of the Board and Chief Executive Officer. She is joined by Luca Maestri, Executive Vice President and Chief Financial Officer.

During this call, Xerox executives will refer to slides that are available on the web at At the request of Xerox Corporation, today's conference call is being recorded. Other recording and/or rebroadcasting of this call are prohibited without expressed permission of Xerox. [Operator Instructions]

During this conference call, Xerox executives will make comments that contain forward-looking statements, which by their nature, address matters that are in the future and are uncertain. Actual future financial results may be materially different than those expressed herein.

At this time, I would like to turn the meeting over to Ms. Burns. Ms. Burns, you may begin.

Ursula M. Burns

Good morning, and thanks for joining us today. We'll get started on Slide 3. To set the stage, here is a year-to-date review of the strategy that is transforming our business. First, accelerating our Services business, growing it faster by diversifying our offerings and expanding globally. Through the third quarter, revenue from Services is up 6%. Backed by a very positive pipeline, we've been especially pleased with the new contracts we've signed this year. Our new business signings are up 7% year-to-date.

Second, we're a services-led technology-driven company, which means maintaining our leadership in document technology is a top priority. We continue to hold our #1 equipment revenue market share position, and we've already launched 21 new products this year. And we're competitively advantaged through the breadth of our portfolio on multiple sales channels and through our innovative workflow and managed print solutions.

Third, we're managing our business with a disciplined focus on operational excellence. Our productivity initiatives this year have helped to offset the challenges from the Japan natural disaster and other macro dynamics.

By executing well on the first 3 priorities, we are delivering on the fourth, expanding earnings and returning cash to shareholders. Through October 24, we've bought back $450 million in Xerox shares with another $250 million planned through the end of the year. And year-to-date, adjusted earnings per share are up 17%. We're on track to grow full year earnings by 15% to 18%.

The year clearly has not been without challenges, but I'm pleased with the progress that we're making on all 4 priorities, all of which collectively deliver value for our shareholders. Part of the value comes in how we're redefining our business and our brand. As a company in the midst of transformation, I've spent a lot of time talking with stakeholders about the new Xerox. It's no surprise that our brand is known for great printing technology, but it's often a big surprise to learn that our technology and services not only change the way the people work but also how they live.

Turn to Slide 4 for some examples of what I mean. This is a snapshot of the many ways our innovation is integrated into solutions that simplify how the world works. Through our transportation solutions group, we're working with municipalities around the world to modernize their public transport systems. In cities like Abu Dhabi, where public transport -- transit use is expected to grow 5x in the next 20 years, we've developed a new payment system that require nothing more than a preloaded debit card. Our role is to handle all the project management, the IT integration, processing and payment reconciliation. As the largest provider of transportation services to governments worldwide, we have projects in 30 countries. Our digital solutions for tolling, parking and public transit are being replicated across multiple geographies from New York, Mexico City and L.A. to Casablanca, New Jersey and 400 other municipalities around the world.

The next example is electronic claims processing. This reflects our expertise in bridging the digital and paper divide. With health care payers, including government agencies like the U.S. Department of Veterans Affairs, we've created the infrastructure and are managing the process to convert our paper-based claims system into a digital one. The new system for the VA will significantly reduce backlogs and more accurately process benefit claims for veterans and their dependents.

We're also making it easier for health care companies to communicate with their members. At Medco, we're developing and managing a multi-channel platform that lets Medco's 65 million members personalize how they receive information from the company via hard copy statements, secure websites, e-mail, text messages or a combination of all of these channels. It's a solution that is providing -- is proven to be relevant for several member-based industries and one that is increasing our revenue with banks and other financial services firms.

All 3 examples demonstrate repeatable, scalable and integrated solutions. This is our approach to real business, improving our client productivity by simplifying the way that they serve their clients. Our results in the quarter reflect progress in these and other areas. So let's turn to Slide 5 for a review of Q3 performance.

In the third quarter, we delivered adjusted EPS of $0.26. That's up 18% from a year ago. On a GAAP basis, earnings were $0.22 per share. This includes $0.04 related to the amortization of intangibles. Revenue was up 3%, reflecting growth in services and aided by the strong euro. Technology revenue was up 1%, and Services revenue increased 6%. Supply constraints due to the natural disaster in Japan has eased considerably, and as we shared with you last quarter, we've been working very closely with our colleagues in Japan to accelerate production and ensure that we're meeting our customers' needs. We've made significant progress in reducing our backlog while meeting new demand, and I'm very confident that these challenges are now entirely behind us.

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