Information technology services provider
) reported GAAP earnings of $300 million or 23 cents per share in
the first quarter of 2013 compared with $276 million or 19 cents
in the year-ago quarter. The reported earnings marginally missed
the Zacks Consensus Estimate by a penny.
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Excluding non-recurring items, adjusted earnings in the reported
quarter were $347 million or 27 cents per share versus $319
million or 23 cents in the year-earlier quarter. The healthy
year-over-year performance is attributable to a solid growth in
the service businesses, along with a stable margin, and a 64%
rise in the total contract value of signings to $3.7 billion.
Total revenues in the quarter declined 3% year over year to $5.4
billion, missing the Zacks Consensus Estimate of $5.5 billion.
Operating margin was down 1.1 basis points to 7.4% in the
reported quarter, driven by higher selling and administrative
expenses in the Technology segment. Gross margin dipped 1.0% to
30.0% driven primarily by the revenue mix within the Services
Revenues from the
segment, which include Document Outsourcing (DO), Business
Process Outsourcing (BPO) and Information Technology Outsourcing
(ITO), rose 4% to $2.9 billion in the reported quarter, driven by
higher revenues from all three subdivisions.
Although segment margin was relatively flat, total Services sales
pipeline grew 5% year over year. Total contract value of deal
signings aggregated $3.7 billion with BPO, DO, and ITO accounting
for $2.8 billion, $792 million, and $108 million, respectively.
Revenues in the
segment dipped 9% year over year to $2.1 billion, with no
negative impact from currency. The decline was attributable to a
12% fall in equipment sales and a 7% decrease in annuity revenues
as Xerox's customers migrated to its partner print services
Segment margin decreased 1.7% to 8.8% as prices were reduced due
to weak macroeconomic environment. Xerox focused more on the
mid-range products in this segment (a revenue mix of 58%)
compared to entry-level (a revenue mix of 22%) and premium range
(a revenue mix of 20%).
Revenues in the
segment went down 13% to $301.0 million compared to the
prior-year period due to lower paper sales and electronic
presentation systems. In order to boost its profitability, Xerox
decided to divest its North American paper and print media
products business (representing about 20% of the segment revenue)
). The transaction is expected to close in second quarter 2013.
Xerox had cash and cash equivalents of $993.0 million at
quarter-end, compared with $1.5 billion in the year-ago period.
Total debt at quarter-end stood at $8.5 billion, almost flat
compared to year-end 2012.
Net cash used in operating activities in the reported quarter
were $87 million. In the reported quarter, Xerox increased its
dividend payout by 35% year over year to a quarterly payment of
5.75 cents per share or 23 cents on an annualized basis.
In order to better adapt to the changing market trends, Xerox is
continually shifting its business model by expanding its indirect
distribution channel and streamlining its supply chain and
product portfolio. The company expects these operational changes
to yield higher margins going forward, thereby enabling it to
maintain its strong market share in Document Technology business.
For second quarter 2013, Xerox expects GAAP earnings between 19
cents to 21 cents per share, while adjusted earnings are expected
to be within 23 cents to 25 cents. For full year 2013, Xerox
reiterated GAAP earnings guidance in the range of 94 cents to
$1.00, and adjusted earnings guidance of $1.09 to $1.15. The
company also reiterated its operating cash flow guidance of $2.1
billion to $2.4 billion in 2013.
Xerox faces stiff competition from other players in the industry
Concurrent Computer Corp
). Xerox currently has a Zacks Rank #2 (Buy).