Xerox Reports Third-Quarter 2012 Earnings
Xerox Reports Third-Quarter 2012 Earnings
- GAAP earnings per share of 21 cents
- Adjusted EPS of 25 cents
- Revenue of $5.4 billion down 3 percent, down 1 percent constant currency
- Services revenue up 5 percent, up 6 percent constant currency
NORWALK, Conn.--(BUSINESS WIRE)-- Xerox (NYS: XRX) announced today third-quarter 2012 adjusted earnings per share of 25 cents, which excludes 4 cents related to the amortization of intangibles, resulting in GAAP earnings of 21 cents per share.
In the third quarter, total revenue of $5.4 billion was down 3 percent or down 1 percent in constant currency.
Revenue from the company's services business was up 6 percent in constant currency, partially offsetting a 7 percent constant currency decline in technology revenue, which represents the sale of document systems, supplies, technical service and financing of products.
During the third quarter, upfront investments in new services contracts as well as the impact of government budgetary pressures on existing contracts led to an 8.6 percent operating margin, down 1 point from third-quarter 2011. Gross margin was 31 percent, and selling, administrative and general expenses were 19.4 percent of revenue.
"Our third-quarter performance aligns with shifts in our business as services become a larger proportion of our revenue, and reflects the dynamics of a challenging economy that is creating cost pressures for large enterprises and governments," said Ursula Burns, Xerox chairman and chief executive officer.
"Steady growth in services is consistent with our strategy. Scaling our offerings in business process, IT and document outsourcing gives us a diversified portfolio that helps mitigate declines in equipment sales and supplies," she added. "In our technology business, we benefit from healthy operating margins that support our bottom-line performance. We're accelerating growth in print-related markets that are expanding, like serving more small and mid-size businesses through indirect channels, and we're maintaining our profitable leadership in markets that are contracting."
In the company's services business, constant currency revenue from business process outsourcing grew 9 percent, IT outsourcing grew 6 percent and document outsourcing, which includes the company's leading managed print services offerings, was up 4 percent.
"While we're pleased with the continued revenue growth trajectory in services, the profitability of a few contracts has been hampered by constraints in government spending, delaying implementation on committed projects that required our upfront investments," said Burns. "We believe this is a short-term consequence of current macro and political conditions. But, we remain cautious, and we are focused on reducing costs to absorb the impact and improve margins while investing in key areas of growth and delivering strong cash flow."
The company generated $594 million in cash from operations and is on track to deliver full-year operating cash flow of $2 billion to $2.3 billion as well as repurchase $900 million to $1.1 billion in Xerox stock during the year.
During the fourth quarter, Xerox is planning to take a restructuring charge in the range of $50 million to $100 million. Until the plans are finalized, the company's EPS guidance excludes this charge. Xerox expects fourth-quarter GAAP earnings of 29 cents to 31 cents per share. Fourth-quarter adjusted EPS is expected to be 33 cents to 35 cents per share. As a result, full-year 2012 GAAP earnings per share are expected to be 92 cents to 94 cents and full-year adjusted earnings per share are expected to be $1.07 to $1.09.
With sales approaching $23 billion, Xerox (NYS: XRX) is the world's leading enterprise for business process and document management. Its technology, expertise and services enable workplaces - from small businesses to large global enterprises - to simplify the way work gets done so they operate more effectively and focus more on what matters most: their real business. Headquartered in Norwalk, Conn., Xerox offers business process outsourcing and IT outsourcing services, including data processing, healthcare solutions, HR benefits management, finance support, transportation solutions, and customer relationship management services for commercial and government organizations worldwide. The company also provides extensive leading-edge document technology, services, software and genuine Xerox supplies for graphic communication and office printing environments of any size. The 140,000 people of Xerox serve clients in more than 160 countries. For more information, visit http://www.xerox.com, http://news.xerox.com or http://www.realbusiness.com. For investor information, visit http://www.xerox.com/investor.
This release refers to the following non-GAAP financial measures:
- Adjusted EPS (earnings per share) for the third quarter 2012 as well as for the fourth quarter and full year 2012 guidance that excludes certain items.
- Operating margin for the third quarter 2012 that excludes certain expenses.
- Constant Currency revenue growth for the third quarter 2012 that excludes the effects of currency translation.
Refer to the "Non-GAAP Financial Measures" section of this release for a discussion of these non-GAAP measures and their reconciliation to the reported GAAP measure.
This release contains "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. The words "anticipate," "believe," "estimate," "expect," "intend," "will," "should" and similar expressions, as they relate to us, are intended to identify forward-looking statements. These statements reflect management's current beliefs, assumptions and expectations and are subject to a number of factors that may cause actual results to differ materially. These factors include but are not limited to: changes in economic conditions, political conditions, trade protection measures, licensing requirements and tax matters in the United States and in the foreign countries in which we do business; changes in foreign currency exchange rates; actions of competitors; our ability to obtain adequate pricing for our products and services and to maintain and improve cost efficiency of operations, including savings from restructuring actions; the risk that unexpected costs will be incurred; our ability to expand equipment placements; the risk that subcontractors, software vendors and utility and network providers will not perform in a timely, quality manner; the risk that individually identifiable information of customers, clients and employees could be inadvertently disclosed or disclosed as a result of a breach of our security; our ability to recover capital investments; development of new products and services; our ability to protect our intellectual property rights; interest rates, cost of borrowing and access to credit markets; the risk that multi-year contracts with governmental entities could be terminated prior to the end of the contract term; reliance on third parties for manufacturing of products and provision of services; our ability to drive the expanded use of color in printing and copying; the outcome of litigation and regulatory proceedings to which we may be a party; and other factors that are set forth in the "Risk Factors" section, the "Legal Proceedings" section, the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section and other sections of our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2012 and June 30, 2012 and our 2011 Annual Report on Form 10-K filed with the Securities and Exchange Commission. The Company assumes no obligation to update any forward-looking statements as a result of new information or future events or developments, except as required by law.
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|Three Months Ended|
|% Change||Nine Months Ended|
|(in millions, except per-share data)||2012||2011||2012||2011|
|Outsourcing, service and rentals||3,727||3,689||1||%||11,257||11,052||2||%|
|Costs and Expenses|
|Cost of sales||1,026||1,154||(11||%)||3,170||3,383||(6||%)|
|Cost of outsourcing, service and rentals||2,668||2,545||5||%||7,983||7,597||5||%|
|Equipment financing interest||49||56||(13||%)||153||176||(13||%)|
|Research, development and engineering expenses||161||183||(12||%)||495||542||(9||%)|
|Selling, administrative and general expenses||1,050||1,109||(5||%)||3,194||3,347||(5||%)|
Restructuring and asset impairment charges
|Amortization of intangible assets||82||87||(6||%)||246||259||(5||%)|
|Other expenses, net||56||86||(35||%)||185||268||(31||%)|
|Total Costs and Expenses||5,106||5,216||(2||%)||15,486||15,544||--|
|Income before Income Taxes & Equity Income(1)||317||367||(14||%)||981||1,118||(12||%)|
|Income tax expense||63||81||(22||%)||206||284||(27||%)|
|Equity in net income of unconsolidated affiliates||34||43||(21||%)||105||111||(5||%)|
|Less: Net income attributable to noncontrolling interests||6||9||(33||%)||20||25||(20||%)|
|Net Income Attributable to Xerox||$||282||$||320||(12||%)||$||860||$||920||(7||%)|
|Basic Earnings per Share||$||0.21||$||0.23||(9||%)||$||0.64||$||0.65||(2||%)|
|Diluted Earnings per Share||$||0.21||$||0.22||(5||%)||$||0.62||$||0.63||(2||%)|
|* Percent change not meaningful.|
|(1) Referred to as "Pre-Tax Income" throughout the remainder of this document.|
|Three Months Ended|
|Nine Months Ended|
|Less: Net income attributable to noncontrolling interests||6||9||20||25|
|Net Income Attributable to Xerox||$||282||$||320||$||860||$||920|
|Other Comprehensive Income (Loss):|
|Translation adjustments, net||$||344||$||(383||)||$||181||$||67|
|Unrealized (losses) gains, net||(2||)||28||(11||)||13|
|Changes in defined benefit plans, net||(10||)||44||-||22|
|Other Comprehensive Income (Loss) Attributable to Xerox||$||332||$||(311||)||$||170||$||102|
|Comprehensive Income, net||$||620||$||18||$||1,050||$||1,047|
|Less: Comprehensive income attributable to noncontrolling interests||6||9||20||25|
|Comprehensive Income Attributable to Xerox||$||614||$||
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