) reported adjusted (excluding special items) earnings of 25
cents per share in the third quarter of 2012, in line with the
Zacks Consensus Estimate. However, profits declined 11% to $333
million in the quarter from $374 million a year ago and by 3.8%
or a penny on a per-share basis from the year-ago level of 26
Revenues in the quarter declined 3% (down 1% in constant
currency) year over year to $5.42 billion, marginally missing the
Zacks Consensus Estimate of $5.49 billion.
Owing to the investments in new service contracts and the adverse
impact of Government budgetary pressures, operating margin
declined 1 percentage point to 8.6% in the quarter from 9.6% in
the year-ago quarter. Ramp up of new services contracts along
with higher mix of Services revenues led to a year over year drop
in gross margins by 1.7 percentage points to 31% in the reported
Revenues from the Services segment, which include Document
Outsourcing (DO), Business Process Outsourcing (BPO) and
Information Technology Outsourcing (ITO), rose 5% to $2.8 billion
(including a negative impact of 1 percentage points from
currency), driven by higher revenues from all three subdivisions.
Growth in government healthcare, travel and insurance businesses,
customer care and retail as well as favorable impacts from the
recent acquisitions helped BPO revenues improve by 7%. Revenues
from the DO segment rose 1% (including a negative impact of 3
percentage points from currency) due to new partner print
services offerings. Revenues from ITO segment went up 6% due to
growth in signings in the recent quarter.
Revenues in the Technology segment dipped 10% to $2.3 billion,
including a negative impact of 3 percentage points from currency.
The decline was attributable to a 17% fall in equipment sales and
a 6% decline in annuity revenues. The negative performance of
this segment stems from the fact that Xerox's customers are
migrating to its partner print services offering within DO.
Revenues in the Other segment went down 13% to $317.0 million,
including a negative impact of 2 percentage points from currency.
The decline in revenues was attributable to lower paper sales.
Xerox had cash and cash equivalents of $882.0 million as of
September 30, 2012, compared with $902.0 million as of December
31, 2011. Total debt stood at $9.3 billion as of September 30,
2012, compared with $8.6 billion as of December 31, 2011.
In the first nine months of 2012, cash generated from operations
stood at $807 million, up from $683 million last year. The
company expects to generate cash flow of $2 billion to $2.3
billion from operations and buyback shares worth $900 million to
$1.1 billion in 2012.
For 2012, the company now expects adjusted earnings between $1.07
and $1.09 per share, down from its earlier view of $1.07 to
$1.12. Xerox anticipates adjusted earnings per share of 33 cents
to 35 cents in the fourth quarter of 2012.
Xerox Corporation, headquartered in Norwalk, Connecticut, is a
leader in the development, manufacture, marketing, servicing and
financing of document equipment across the world. We believe that
the company will benefit from the new deals signed and successful
However, intense competition from its peers - including
) - might affect the company's results. The company retains a
Zacks #2 Rank, which translates to a short-term (1-3 months) Buy
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