Information technology services provider
) reported net income (from continuing operations) of $279
million or 23 cents per share in the first quarter of 2014
compared with $293 million or 23 cents a share in the year-ago
quarter. Despite a year-over-year decrease in net income,
earnings remained flat on a per share basis due to lesser number
of shares outstanding for the reported quarter due to continued
Excluding non-recurring items, adjusted earnings (from continuing
operations) for the reported quarter were $331 million or 27
cents per share versus $344 million or 27 cents per share in the
year-earlier quarter. The better-than-expected adjusted earnings
for the reported quarter exceeded the Zacks Consensus Estimate by
The year-over decrease in earnings was primarily attributable to
decline in revenues, which decreased 2% year over year to $5,121
million. Quarterly revenues also missed the Zacks Consensus
Estimate of $5,174 million. Operating margin for the reported
quarter was up 1.1% year over year to 8.6%, while gross margin
Revenues from the
segment, which include Document Outsourcing (DO), Business
Process Outsourcing (BPO) and Information Technology Outsourcing
(ITO), remained relatively flat at $2,923 million in the reported
quarter (57% of total revenue). While revenues from DO and ITO
increased year over year, BPO revenues declined due to lower
volumes in customer care, government and transportation
Segment margin decreased 0.7% year over year to 8.6% largely due
to the impact of price declines, higher healthcare platform
expenses and the run-off of the student loan business. Total
Services sales pipeline grew 9% year over year. Total contract
value of deal signings aggregated $3.0 billion with BPO, DO and
ITO accounting for $2.1 billion, $650 million and $200 million,
Revenues in the
segment dipped 4% year over year to $2,045 million (40% of total
revenue) due to a fall in equipment sales and annuity revenues.
Segment margin increased 3.4% year over year in the reported
quarter to 12.2% owing to cost productivities, lower pension
expense, positive effects from restructuring and changes in
revenue mix. The revenue mix for the segment comprised 57%
mid-range, 22% high-end and 21% for entry-level products.
Revenues in the
segment increased 4% to $153 million (3% of total revenue) due to
higher sales of electronic presentation systems. Segment loss of
$51 million improved year over year on profit from the sale of
the surplus facility in Latin America, partially offset by
increased non-financing interest expense and currency impacts.
Xerox had cash and cash equivalents of $1,567 million at quarter
end, compared with $993 million in the year-ago period. Long-term
debt at the end of the reported quarter stood at $8,005 million
versus $8,021 million at year-end 2013. During the quarter, Xerox
amended the $2.0 billion unsecured revolving credit facility to
extend the maturity date to March 2019 from Dec 2016. At quarter
end, the company had no outstanding borrowings or letters of
credit under the credit facility.
Net cash provided by operating activities in the reported quarter
were $286 million versus cash utilization of $87 million in the
year-ago period. The company repurchased $275 million worth of
shares in the reported quarter. Xerox increased the quarterly
cash dividend by 8.7% to 6.25 cents per share, beginning with the
dividend payable on Apr 30, 2014.
For second quarter 2014, Xerox expects GAAP earnings between 21
cents and 23 cents per share, while adjusted earnings are
expected to be within 25 cents to 27 cents.
For full year 2014, Xerox adjusted its GAAP earnings guidance in
the range of 90 cents to 96 cents per share from 93 cents to 99
cents expected earlier. Adjusted earnings are expected between
$1.07 and $1.13 per share compared with prior expectations of
$1.10 and $1.16. Xerox increased its share repurchase
expectations for the year to $700 million from earlier
projections of $500 million.
With a truncated fiscal outlook and year-over-year decline in
revenues, investor sentiments were down as share prices fell in
post the earnings release. Moving forward, Xerox expects to
realign its business model to better adapt to the evolving market
trends by expanding indirect distribution channel and
streamlining its supply chain and product portfolio. Xerox also
intends to focus more on vertical markets like healthcare. In
addition, it is integrating its market-leading Managed Print
Services (MPS) with business process and IT outsourcing
capabilities and continuing its thrust for leadership in Document
Xerox also remains committed to its 5-plank strategy that is
centered on portfolio management, global growth, cost
transformation, operational excellence and analytics. With
sustained investments to expand geographical footprint and build
its services capabilities in areas that provide significant
customer value, Xerox expects to reap benefits in the long run.
Xerox currently has a Zacks Rank #3 (Hold). Other stocks that
look promising and are worth considering in the technology
Advanced Micro Devices, Inc.
Rubicon Technology, Inc.
), each carrying a Zacks Rank #2 (Buy).
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