Xerox profit misses estimates, sets job cuts

NEW YORK Thu Oct 23, 2008 10:13am EDT

NEW YORK (Reuters) - Xerox Corp posted lower-than-expected quarterly results and issued a fourth quarter forecast that fell short of Wall Street estimates, sending its shares down about 3 percent in early trade.

The company said demand for its more expensive office printing equipment systems slowed and it plans to cut 5 percent of its workforce, or 3,000 jobs to cut costs.

The world's top supplier of digital printer and document management services plans to take a $400 million charge in the fourth quarter due to the accelerated cost cutting plans.

The weak U.S. economy has spurred some clients to become hesitant to purchase higher-end technology. As a result, the company has marked increased sales of lower-priced products, hurting gross margins.

"We believe weaker-than-expected production revenue (which yield higher margins) led to the shortfall -- the spending trends on which we can't see significantly changing near-term given macro concerns," said Bank of America analyst Ananda Baruah in a note to clients.

Chief executive Anne Mulcahy said that Xerox has benefited from demand from small- and mid-sized businesses, and from developing markets, where revenue rose 15 percent. But, in order to stem what she called a "tough business environment," Xerox will have to shed costs over the next six months.

"To better align our operations with these changes, we're accelerating actions to reduce our cost base and drive operational improvements across the board," Xerox chief executive Anne Mulcahy in a statement.

Third quarter net income was $258 million, or 29 cents a share, versus $254 million, or 27 cents a share one year ago. Its gross margins declined to 39.2 percent from 40.1 percent.

Excluding special items, such as the settlement of certain tax benefits and a restructuring charge, the profit was 26 cents a share, according to Reuters Estimates.

Analysts had expected a profit of 28 cents a share, according to Reuters Estimates.

Total revenue rose 2 percent to $4.4 billion, but was essentially unchanged after the benefit of the weak dollar.

Xerox, which earns about 70 percent of its revenue from supplies and services sold to repeat customers, said so-called post-sales revenue rose 3 percent, while equipment sales declined 3 percent in the third quarter.

It expects fourth quarter earnings in the range of 34 cents to 36 cents per share, compared to Wall Street view of 43 cents a share, according to Reuters Estimates.

Shares of the company, which competes with Canon Inc (7751.T) of Japan and Heidelberg (HDDG.DE) of Germany, slipped 18 cents to $7.80 in early trading on the New York Stock Exchange. The shares are down about 51 percent this year. (Reporting by Franklin Paul; Editing by Derek Caney)

FILED UNDER: