Xerox 2nd-Qtr Profit More Than Doubles on Tax Gain (Update2) Listen
July 25 (Bloomberg) -- Xerox Corp., the world's biggest document-management company, said second-quarter earnings more than doubled, bolstered by a $343 million tax benefit. Profit excluding the gain was less than analysts forecasts.
Shares of Xerox dropped as much as 6.4 percent. Net income rose to $423 million, or 40 cents a share, from $208 million, or 21 cents, a year earlier, Stamford, Connecticut-based Xerox said today in a statement. Revenue rose 1.8 percent to $3.92 billion, including a currency gain of 2 percentage points.
Gross margin declined 2.3 percentage points to 39 percent, as sales of lower-priced office products including networked photocopiers outpaced the company's large production equipment used by customers such as printers. Chief Executive Officer Anne Mulcahy, who is eliminating jobs to help reduce expenses, said third-quarter profit would also be less than forecast.
``We have to determine how long the pressure on gross margins will last,'' said Megan Graham-Hackett, an analyst at Standard & Poor's Equity Service in New York, who has a ``hold'' rating on Xerox. ``We'll have to see if this is more of a hiccup or a long-term issue.''
Excluding the tax gain, the company said profit would have been 20 cents a share. On that basis, Xerox was expected to earn 23 cents, the average estimate of eight analysts surveyed by Thomson Financial.
Third-quarter profit is expected to be 16 cents to 18 cents a share, including 1 cent a share in restructuring costs. Xerox was forecast to earn 22 cents, according to seven analysts surveyed by Thomson Financial.
Copier Market
Xerox shares fell 85 cents to $13.20 at 9:40 a.m. in New York Stock Exchange composite trading. They had dropped 17 percent this year.
Mulcahy, 52, has fired at least 17,000 people and hired other companies to make Xerox products as it competes with Canon Inc., Ricoh Co. and Hewlett-Packard Co. The company had $130 million in costs during the second quarter to eliminate an unspecified number of jobs.
As Xerox shifts to more digital products, sales of its traditional analog ``light-lens'' copiers are falling as the company takes them out of service. Xerox is focusing more on color printing, selling related supplies and leasing networked systems. It also is offering consulting services to help other companies manage their documents.
``We expect Xerox's company-wide revenue growth to continue to be pressured by an overall slow down in the IT spending environment and reduced corporate spending,'' Christopher Whitmore, an analyst with Deutsche Bank in San Francisco, wrote in a July 11 research. The shift in the company's sales mix toward less-expensive models will pressure earnings, he said.
Tax Audit
Equipment sales increased 3.6 percent to $1.1 billion, while sales of supplies and services rose 1.7 percent to $2.59 billion.
The tax gain was the result of the finalization of an Internal Revenue Service audit for 1996 through 1998. The audit yielded benefits associated with a change in tax law that allowed the company to recognize a gain for losses associated with the disposition of an insurance group operation and the favorable resolution of other tax matters.
Xerox in 2002 restated revenue for 1997 through 2001 and paid a $10 million fine as part of a settlement of fraud allegations by the Securities and Exchange Commission. The company did not admit or deny wrongdoing.
(Xerox's earnings conference call at 10 a.m. New York time will be available on {LIVE <GO>}.
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