UPDATE 2-Xerox revenue misses estimate as services growth stalls

Fri Jan 24, 2014 12:03pm EST

* Sees first-quarter adjusted profit $0.23-0.25/share vs est $0.24/share

* Fourth-quarter revenue $5.57 bln vs est $5.64 bln

* Shares down 2 pct (Adds details from conference call, updates share movement)

Jan 24 (Reuters) - Xerox Corp, best known as a maker of printers and copiers, reported weaker-than-expected quarterly revenue as growth in its services business stalled.

The services division, which manages businesses ranging from toll systems to healthcare programs, failed to register growth for the first time since 2009, when Xerox entered the business by buying Affiliated Computer Services Inc.

The company has been focusing on the business, which brings in 55 percent of its revenue, as cost-conscious companies print less and personal computing moves to tablets and smartphones, putting pressure on its traditional printer and copier business.

Revenue from business process outsourcing dropped 3 percent in the fourth quarter because of the loss of a high-margin federal contract to handle student loans last year and weakness in its customer care business, Chief Financial Officer Kathy Mikells said on a conference call.

Growth in IT outsourcing slowed as Xerox won fewer deals in the quarter.

Services revenue is expected to grow by about 1 percent in the current quarter, driven by BPO as the business signs on more customers and as the company closed its acquisition of Germany-based customer care services provider Invoco Holding GmbH last week, Mikells said.

The company's operating margin shrank 1.3 percentage points to 9.3 percent in the fourth quarter as it had to spend more than expected to set up Medicaid management platforms and healthcare exchanges, and the loss of the student loan contract last year.

Mikells said Xerox set up Medicaid management portals for New Hampshire and Alaska and healthcare exchanges for Nevada, among others, last year.

Revenue from its printing business dropped 6 percent to $2.4 billion in the quarter ended Dec. 31. The services business generated $3.0 billion in revenue.

Total revenue dropped 3.4 percent to $5.57 billion.

Net income from continuing operations attributable to Xerox slipped to $310 million, or 25 cents per share, from $334 million, or 26 cents per share, a year earlier.

Excluding items, the company earned 29 cents per share.

Analysts on average had expected earnings of 29 cents per share on revenue of $5.64 billion, according to Thomson Reuters I/B/E/S.

The company also forecast adjusted earnings per share from continuing operations of 23-25 cents per share for the three months to March 31, which was largely in line with analysts' average estimate of 24 cents per share.

Xerox shares were down 2 percent at $11.50 on the New York Stock Exchange on Friday. (Reporting by Sruthi Ramakrishnan in Bangalore,)

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