Xerox Q2 Results Average, but Upside Catalysts Remain Elusive Despite ACS

Xerox announced today first-quarter 2011 results that include adjusted earnings per share of 23 cents.  "Our results in the quarter reflect solid progress in scaling our services business while maintaining our leadership in document technology," said Ursula Burns, chairman and chief executive officer. 

First-quarter revenue of nearly $5.5 billion was up 2 percent on a pro-forma basis with ACS in the company’s results.  Revenue from technology, representing the sale of document systems, supplies, technical service and financing of products, was flat.  Revenue from services was up 5 percent on a proforma basis, and represents the company’s business process, IT and document outsourcing offerings.  

Signings for Xerox’s services totaled $3 billion in the first quarter and were up 3 percent on a trailing 12-month basis.  "In the past year, we transformed not only our business into a leading player in the services space, but also our business model with growth largely driven from an increasing annuity stream," added Burns. "Multi-year, multimillion dollar services contracts generate long-term revenue.  And, we fueled this annuity in the first quarter through growth in both services revenue and signings while building a strong pipeline for future business.  

“We continue to hold the number-one revenue market share position for document technology, and strengthened this position during the first quarter with a 27 percent increase in installs of our midrange color systems and 19 percent growth in high-end color systems,” said Burns.

Xerox also commented on the business impact from the earthquake in Japan. “We are focused intently on minimizing any disruption in providing products and supplies to our customers,” said Burns. Xerox expects second-quarter 2011 GAAP earnings of 18 to 21 cents per share. Second-quarter adjusted EPS is expected to be 23 to 26 cents per share.  Full-year 2011 GAAP earnings are expected to be 89 to 94 cents per share.  Full-year adjusted earnings are expected to be $1.05 to $1.10 per share.  

Xerox was trading at $10.22 a share after dropping more than 5% on intensifying competition, slowing industry wide unit volume growth, continued mix shift towards lower-margin services contracts and incremental supply chain costs (particularly in 2Q) related to Japan to pressure near-term results.