Xerox Profit Falls Short

The company also sees third-quarter earnings below estimates.
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said its second-quarter net income rose from the same period a year ago, but the company's adjusted results fell short of Wall Street's estimates, and the copier and printing systems maker offered a disappointing profit forecast.

The Stamford, Conn., company posted second-quarter earnings of $423 million, or 40 cents a share, including a gain of 33 cents from a recent IRS tax settlement and restructuring charges of 13 cents a share. Before the items, the company earned 20 cents.

Equipment sales in the second quarter rose 4% from a year ago, and total revenue of $3.92 billion increased 2%. Revenue from new digital systems and services offset declines from the company's older light-lens technology. In the year-ago quarter, the company earned $208 million, or 21 cents a share, on revenue of $3.85 billion.

Xerox had a gross margin of 39% in the quarter, which was lower than expected because of a change in the company's traditional product mix. The shift in products was mainly related to increased sales activity for desktop office products, as well as light production and color systems.

"These equipment sales will drive future post-sale gains, and, at the same time, we're adjusting our business model to respond to the resulting pressure on margins," the company said in a press release Monday. "We remain confident that these actions and increased sales of new technology -- 25 new products launched in the second quarter -- coupled with growth from Xerox Global Services provide the marketplace momentum for strong second-half performance."

Revenue from color products was up 17% in the second quarter. In the quarter, Xerox generated operating cash flow of $290 million after contributing $230 million to its primary U.S. pension plan. The company closed the quarter with a cash and short-term investments balance of $2.1 billion. Debt was down $2.1 billion year over year and down $1.5 billion from the first quarter.

For the third quarter, Xerox expects earnings of 16 cents to 18 cents a share, including restructuring charges of 1 cent a share.

On average, analysts surveyed by Thomson First Call expected second-quarter earnings of 23 cents a share with revenue of $3.86 billion. The consensus forecast for the third quarter is a profit of 22 cents.