By Nicola Leske
Jan 24 Xerox Corp reported quarterly earnings slightly above expectations on Thursday and reiterated its full-year targets as it restructures parts of its business in its effort to become a broader technology company.
Chief Executive Ursula Burns said on an analysts' call that Xerox was going through "a seismic shift" and "2012 was a year of alignment".
Xerox is at pains to shed its printer company image, wanting instead to be known for its services business, which it entered with the 2009 acquisition of Affiliated Computer Services Inc for $5.5 billion.
In the fourth quarter of 2012 Xerox began a restructuring program focused on the services business, which manages anything from toll systems to healthcare programs.
Lynn Blodgett, who heads the services unit, said Xerox had made good progress, but there was still cost cutting to be done.
But Burns said she was optimistic the company was well equipped to meet its targets even though she did not expect economic conditions to improve much.
"I am upbeat, I am very confident in the guidance we have," Burns said.
"This is not going to be a walk in the park. The environment hasn't changed that dramatically to make it that much better," she added.
For the first three month of 2013, Xerox expects earnings to be in a range of 23 cents to 25 cents per share. Analysts looked for 24 cents in the first quarter, according to Thomson Reuters I/B/E/S.
The company reiterated its full-year EPS target of $1.09 to $1.15 and forecast operating cash flow of $2.1 billion to $2.4 billion.
Fourth-quarter revenue was flat at $5.9 billion and earnings per share, excluding items, were 30 cents. Analysts looked for $5.88 billion in revenue and EPS of 29 cent.
Xerox stock was up 3.6 percent at $7.85 in midday trade.
Some analysts called the outlook conservative.
Shannon Cross at Cross Research said the guidance "is likely conservative, given tailwinds from currency, significant product refreshes in technology, restructuring and easier comparisons."
She anticipated the company would return cash to shareholders through a dividend, share repurchase and service-oriented acquisitions.
Cross added that the fourth-quarter operating margin was up 30 basis points year-on-year, benefiting from the restructuring efforts. Operating margin was 10.3 percent, Xerox said.
Xerox's services business now generates more than 50 percent of revenue and by 2017, Burns said, it will grow to generate two-thirds of revenue.
Quarterly revenue from the business was up 7 percent thanks to recurring contracts.
But new contract signings in the services segment declined 25 percent to $2.9 billion in last 12 months. Xerox said the drop was due to a decrease in very large deals and shorter contract lengths, which Burns said have gone from five years to three years.
"The shorter contract and less megadeals is a sign of the times today," she said, adding there were significant pressures from both government and large enterprises given a very weak macroeconomic environment.
Still, Xerox said the pipeline of future deals remained strong with 6 percent year-on-year growth.
Revenue from the document technology business, which includes document systems, supplies, technical services and financing of products, was down 8 percent due to difficult economic and market conditions, Xerox said.
Equipment sales were becoming a much smaller percentage of the business and they were the most impacted by economic and industry trends, Burns said.
Nevertheless, she was optimistic about new products and investments that she said would boost market share.
"We expect the equipment sales trend to improve modestly this year."