Wednesday, January 20, 2010

Xerox Corp. (NYSE: XRX): Q4 Earnings Preview 2009

. Wednesday, January 20, 2010

By Stock Wizard

Xerox Corp. (NYSE: XRX), the world's largest supplier of digital printer and document management services, is scheduled to release its financial results for fourth quarter of fiscal year 2009 before the market open on Thursday, January 21, 2010. Analysts, on average, expect the company to report earnings of 22 cents a share on revenue of $3.91 billion. In the year ago quarter, the company reported earnings of 30 cents per share on revenue of $4.37 billion. Xerox Corporation has topped estimates in its last three quarters.

Xerox Corporation engages in the development, manufacture, marketing, servicing, and financing of document equipment, software, solutions, and services worldwide.

Xerox suffered a major blow from economic recession as companies stayed away from investment in additional printers and the associated cost of paper, inks, consumables etc. amid cost-reduction drive. However, the industry on the whole is showing signs of life amid strong demand and economic recovery in the fourth quarter. While customers are still hesitant to buy new equipment, they are still signing up for Xerox's services that help clients identify ways to trim their own costs.

In October, the printer and copier company reported a 52% year-over-year drop in profit for the third quarter, hurt by a 16% decline in quarterly revenues on lower demand amid the continued weakness in global economy. However, the results still topped Wall Street expectations. The Norwalk, Connecticut-based company reported net income of $123 million or $0.14 per share for the third quarter, down from $258 million or $0.29 per share in the year-ago quarter. Revenue declined 16% to $3.68 billion from $4.37 billion in the same quarter last year. Analysts, on average, expected the company to report earnings of $0.12 per share on revenue of $3.63 billion. Thanks to strict cost controls, the company managed to improve its total gross margin by 60 basis points to 39.8% from the prior-year quarter's 39.2%. The company recorded a 15 percent reduction in costs.

For the fourth quarter, Xerox anticipates earnings in the range of 20 cents to 22 cents a share.For fiscal 2009, the company expects earnings in the range of $0.55 and $0.57 per share, up from the prior guidance range of $0.50 and $0.55 per share.

The company has turned its focus towards acquisitions in recent times to diversify its revenue sources. On Wednesday, Xerox announced that it has agredd to buy Irish Business Systems for $31 million to expand its reach in the country. IBS is the largest independent supplier of digital imaging and printing solutions in Ireland. Xerox Corp. and Affiliated Computer Services Inc. (NYSE: ACS) shareholders will vote on February 5 on Xerox's agreement to purchase ACS. In a deal, which would accelerate Xerox's growth in the $150 billion business process outsourcing or BPO, Xerox Corp. in September agreed to acquire Affiliated Computer Services, Inc., the world's largest diversified business process outsourcing firm, in a cash and stock deal valued at $63.11 per share or $6.4 billion. The acquisition, which would create a $22 billion global enterprise for document technology and business process management, is expected to close in the first quarter of 2010. Xerox said buying ACS will triple its services revenue to an estimated $10 billion this year and could yield 10-15 percent earnings growth on revenues around $25 billion by 2012.

The company's stock currently trades at a forward P/E (fye 31-Dec-10) of 12.38 and PEG ratio (5 yr expected) of 7.91. In terms of stock performance, XEROX shares have gained 20 percent over the past year.

Full Disclosure: None.

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