Revenue, Earnings Down at Xerox, Lowers Forecast

xerox squareXerox today reported results for first-quarter 2014, with earnings per share of 23 cents, and revenue of $5.1 billion, down 2 percent versus first-quarter 2013, with 57 percent of revenue ($2.9 billion) derived from its Services business. Net earnings were $281 million, down 5 percent versus first-quarter 2013. Revenue from the company’s Document Technology business, which includes copiers, MFPs, printers, supplies, etc., and which represented 40 percent of total revenue, was $2.0 billion, down 4 percent.

“Our first-quarter performance reflects the value of our diversified business. Good profitability in Document Technology along with strength in document outsourcing and in commercial outsourcing services contributed positively to our results,” commented Xerox Chairman and CEO Ursula Burns. “But these gains were offset by higher-than-anticipated investments in our government healthcare business as we implement new Medicaid and health insurance exchange platforms. We’re focused on driving Services growth and margin improvement by executing on our Five-Plank Strategy and expect the benefits to build through 2014.”

Within the Document Technology business, first-quarter revenue was $2.0 billion, down 4 percent year-over-year:

  • Equipment revenue was down 4 percent year-over-year, making up 28 percent of revenue.
  • Annuity revenue was down 4 percent year-over-year,making up 72 percent of revenue.
  • Economic conditions included a stable U.S. market, improving European market, continued weakness in developing markets. 
  • Continued strong color machine installation growth.
  • Revenue mix of 21 percent entry, 57 percent mid-range, and 22 high-end machines.
  • The highest installation growth was in high-end printer/copiers (33 percent), followed by A4 color MFPs (20 percent).

 The company generated $286 million in cash flow from operations during the first quarter. Also during the quarter, the company repurchased $275 million in Xerox stock.

 “Our strong cash position enabled a fast start to our share-repurchase program, and we are increasing our full-year share repurchase expectations from at least $500 million to at least $700 million. We continue to make investments in expanding services outside of the United States and to build out our services capabilities in areas that provide significant customer value,” said Burns.

First-quarter operating margin of 8.6 percent improved 1.1 points year-over-year. Gross margin was 30.2 percent, and selling, administrative and general expenses were 18.8 percent of revenue.

As a result of increased implementation costs in government healthcare, the company is lowering its guidance for both full-year Services segment margin and 2014 earnings.

Second-quarter 2014 earnings per share is expected to be 21 to 23 cents per share. The company expects full-year 2014 earnings per share of 90 to 96 cents and full-year adjusted EPS of $1.07 to $1.13.

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