Xerox Reports Earnings of 21 Cents Per Share; Raises Full-Year Earnings Expectations
STAMFORD, Conn., Jul 23, 2004 (BUSINESS WIRE) -- Xerox Corporation (NYSE: XRX)
-- Equipment sale growth of 5 percent
-- Gross margin of 41.3 percent
-- Total revenue of $3.9 billion
Xerox Corporation (NYSE: XRX) announced today second-quarter earnings of 21 cents per share that reflect continuing success in the company's operational performance. Services-led offerings for large enterprises generated major wins in the quarter while continued strength in color technology and monochrome light production systems contributed to equipment sales growth. The company also said it is raising its full-year earnings expectations.
"Market demand for new systems and specialized services as well as a clear focus on providing smart document management for businesses small to large - all delivered through a flexible cash-generating business model - resulted in another quarter of earnings that exceeded our expectations," said Anne M. Mulcahy, Xerox chairman and chief executive officer.
"This earnings performance and strong demand for Xerox's new technology and value-added services give us the confidence to raise our full-year earnings expectations to 80-84 cents per share, up from earlier expectations of 67-72 cents per share," she added. The increase includes the 8-cent gain from the sale in the first quarter of Xerox's ownership position in ContentGuard, which will be partially offset by an incremental marketing and restructuring investment of 4 cents per share expected during the balance of the year.
With technology investments fueling equipment sales, the company said that about two-thirds of all equipment sales in the second quarter came from products launched in the past two years.
Equipment sales grew about 5 percent in the second quarter, and total revenue was $3.9 billion, down 2 percent from the second quarter of last year. Both equipment sales and total revenue included a currency benefit of 2 percentage points. Revenue growth continued to be impacted by post-sale revenue declines from the company's older light-lens technology. In addition, weak performance in Latin America significantly impacted post-sale and total revenue.
Second-quarter revenue from the company's targeted growth areas - office digital, production digital and value-added services - grew 4 percent year over year and now represents about 73 percent of the company's revenue.
Revenue from color products grew 17 percent in the second quarter and is a key driver of Xerox's growth strategy as the increasing volume of pages printed on Xerox's color systems flows through to post-sale revenue. Color revenue now represents 25 percent of Xerox's total revenue.
Leading with Services
Along with continued success in delivering affordable, innovative technology, Xerox is making a powerful impact with services for large companies like implementing e-learning programs for a global workforce, deploying Xerox's proprietary DocuShare(R) software for Web-based editing and archiving of critical corporate documents, and applying Lean Six Sigma tools to reduce customers' overall document spend by an average of 30 percent. The growing base of customers that have engaged Xerox for consulting, imaging and content management contributed to a significant increase in revenue generated from value-added services.
Driving the New Business of Printing
Through the company's production business, Xerox continues to lead the "new business of printing" by helping commercial printers and document-intensive industries make the transition from offset to the more dynamic world of digital. During the second quarter, Xerox announced at drupa -- the world's largest graphic arts and printing show -- seven new digital systems with an expanded suite of services and workflow tools that drive profit for customers as well as Xerox.
Production color installs grew 17 percent in the quarter largely due to the Xerox iGen3(R) digital color production press and DocuColor(R) 5252 digital color systems. Installs of production monochrome products increased 13 percent primarily driven by demand for the company's Nuvera(TM) 100/120 copier/printer and the Xerox 2101 light production system.
Digitizing the Office
Xerox continued to fortify its portfolio of office products with new offerings like the Phaser(R) 6100 color printer, the Phaser 3130 monochrome printer and the WorkCentre(R) M20 and M20i multifunction devices, all of which launched in the second quarter. Installs of Xerox office monochrome systems were up 25 percent in the second quarter due to continued strong demand from small and midsized businesses for the Xerox WorkCentre desktop multifunction devices. Office color multifunction installs grew 40 percent and office color printing installs were up 54 percent driven by continued positive momentum from the Phaser line of solid ink and laser printers.
Selling, administrative and general expenses were down 4 percent in the second quarter to 27.3 percent of revenue. Gross margins of 41.3 percent improved sequentially and are in line with the company's full-year expectations. Xerox generated operating cash flow of $256 million after contributing $232 million to pension plans.
Commenting on the third quarter, Mulcahy said she expects earnings in the range of 11-15 cents per share, citing continued equipment sale growth and increased revenue in key markets. She added, "While maintaining our disciplined approach to managing costs, we will continue to compete aggressively with new systems and services that solidify Xerox's position as the leader in document management, delivering another quarter of improved earnings performance."
Media Contacts:
Christa Carone, Xerox Corporation, on July 23: 203-968-3086, after July 23: 585-423-5074, christa.carone@usa.xerox.com
Bill McKee, Xerox Corporation, 585-423-4476, bill.mckee@usa.xerox.com
NOTE TO EDITORS: This release contains forward-looking statements and information relating to Xerox that are based on our beliefs as well as assumptions made by and information currently available to us. The words "anticipate," "believe," "estimate," "expect," "intend," "will" and similar expressions, as they relate to us, are intended to identify forward-looking statements. Actual results could differ materially from those projected in such forward-looking statements. Information concerning certain factors that could cause actual results to differ materially is included in the company's first-quarter 2004 Form10-Q filed with the SEC.
For presentation slides and more information about Xerox, visit www.xerox.com/investor. XEROX(R), The Document Company(R), the digital X(R), Nuvera(TM), iGen3(R), Phaser(R) and WorkCentre(R) are trademarks of XEROX CORPORATION. DocuColor is a registered trademark licensed to Xerox Corporation.
Xerox Corporation
Condensed Consolidated Statements of Income (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
(in millions, except
per share data) 2004 2003 % Change 2004 2003 % Change
---------------------- ----------------------- -----------------------
Revenues
Sales $1,759 $1,696 4% $3,440 $3,285 5%
Service,
outsourcing and
rentals 1,860 1,970 (6%) 3,768 3,887 (3%)
Finance income 234 254 (8%) 472 505 (7%)
-------------- --------------
Total Revenues 3,853 3,920 (2%) 7,680 7,677 -
Costs and Expenses
Cost of sales 1,123 1,069 5% 2,235 2,070 8%
Cost of service,
outsourcing and
rentals 1,052 1,096 (4%) 2,154 2,185 (1%)
Equipment
financing
interest 86 93 (8%) 175 185 (5%)
Research and
development
expenses 187 225 (17%) 380 461 (18%)
Selling,
administrative
and general
expenses 1,050 1,089 (4%) 2,086 2,109 (1%)
Restructuring
charges 33 37 (11%) 39 45 (13%)
Provision for
litigation - - * - 300 *
Other expenses,
net 50 201 (75%) 137 358 (62%)
---------------------- -------------- --------------
Total Costs and
Expenses 3,581 3,810 (6%) 7,206 7,713 (7%)
---------------------- -------------- --------------
Income (Loss) from
Continuing Operations
before Income taxes and
Equity Income **
Income taxes and
Equity Income ** 272 110 * 474 (36) *
Income taxes
(benefits) 91 40 * 158 (27) *
Equity in net
income of
unconsolidated
affiliates 27 16 * 57 30 *
---------------------- -------------- --------------
Income from Continuing
Operations 208 86 373 21
Gain on sale of
ContentGuard,
net of income
taxes of $26 - - 83 -
---------------------- -------------- --------------
Net Income $208 $86 * $456 $21 *
Less: Preferred
stock dividends,
net (21) (11) * (45) (21) *
---------------------- -------------- --------------
Income Available to
Common Shareholders $187 $75 * $411 $- *
====================== ============== ==============
Basic Earnings per
share:
Earnings from
Continuing
Operations $0.23 $0.10 * $0.41 $- *
Net Earnings per
Share $0.23 $0.10 * $0.51 $- *
Diluted Earnings per
share
Earnings from
Continuing
Operations $0.21 $0.09 * $0.38 $- *
Net Earnings per
Share $0.21 $0.09 * $0.46 $- *
Note: Certain reclassifications of prior year amounts have been made
to these financial statements to conform to the current year
presentation.
* Percent not meaningful.
** Referred to as "pre-tax income (loss)" throughout the remainder
of this document.
Xerox Corporation
Condensed Consolidated Balance Sheets (Unaudited)
June 30, December 31,
(in millions) 2004 2003
----------------------------------------------------------------------
Assets
Cash and cash equivalents $2,542 $2,477
Accounts receivable, net 2,037 2,159
Billed portion of finance receivables, net 454 461
Finance receivables, net 2,850 2,981
Inventories 1,225 1,152
Other current assets 1,150 1,105
---------------------------------------------- ----------------------
Total Current Assets 10,258 10,335
Finance receivables due after one year, net 4,961 5,371
Equipment on operating leases, net 350 364
Land, buildings and equipment, net 1,731 1,827
Investments in affiliates, at equity 702 644
Intangible assets, net 307 325
Goodwill 1,746 1,722
Deferred tax assets, long-term 1,468 1,526
Other long-term assets 1,974 2,477
---------------------------------------------- ----------------------
Total Assets $23,497 $24,591
============================================== ======================
Liabilities and Equity
Short-term debt and current portion of
long-term debt $4,219 $4,236
Accounts payable 901 1,010
Accrued compensation and benefits costs 422 532
Unearned income 223 251
Other current liabilities 1,356 1,540
---------------------------------------------- ----------------------
Total Current Liabilities 7,121 7,569
Long-term debt 6,051 6,930
Pension and other benefit liabilities 1,079 1,058
Post-retirement medical benefits 1,268 1,268
Liability to subsidiary trusts issuing preferred
securities 1,751 1,809
Other long-term liabilities 1,147 1,278
---------------------------------------------- ----------------------
Total Liabilities 18,417 19,912
Series B convertible preferred stock - 499
Series C mandatory convertible preferred stock 889 889
Common stock, including additional paid in
capital 3,801 3,239
Retained earnings 1,726 1,315
Accumulated other comprehensive loss (1,336) (1,263)
---------------------------------------------- ----------------------
Total Liabilities and Equity $23,497 $24,591
============================================== ======================
Shares of common stock issued and outstanding were (in thousands)
839,107 and 793,884 at June 30, 2004 and December 31, 2003
respectively.
Xerox Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Six Months
Ended Ended
June 30, June 30,
(in millions) 2004 2003 2004 2003
-------------------------------------- ------- ------- ------- -------
Cash Flows from Operating Activities
Net income $208 $86 $456 $21
Adjustments required to reconcile net
income to cash flows from operating
activities:
Gain on sale of Contentguard - - (83) -
Provision for litigation - - - 300
Depreciation and amortization 168 189 343 388
Provisions for receivables and
inventory 47 98 98 173
Net (gain) loss on sales of
businesses and assets (40) 6 (50) 8
Undistributed equity in net income of
unconsolidated affiliates (11) (7) (34) (20)
Loss on early extinguishment of debt - 73 - 73
Restructuring and other charges 33 37 39 45
Cash payments for restructurings (44) (73) (104) (253)
Contributions to pension benefit
plans (232) (32) (249) (52)
Early termination of derivative
contracts - - 60 -
(Increase) decrease in inventories (58) 17 (131) 17
Increase in on-lease equipment (62) (36) (102) (72)
Decrease in finance receivables 120 162 298 345
Decrease in accounts receivable and
billed portion of finance
receivables 24 100 63 75
Increase (decrease) in accounts
payable and accrued compensation 70 136 (13) (21)
Net change in income tax assets and
liabilities 2 (48) 22 (139)
Decrease in other current and long-
term liabilities (2) (47) (87) (51)
Other, net 33 21 (27) 4
------- ------- ------- -------
Net cash provided by operating
activities 256 682 499 841
------- ------- ------- -------
Cash Flows from Investing Activities
Cost of additions to land, buildings
and equipment (47) (44) (95) (79)
Proceeds from sales of land,
buildings and equipment 7 3 39 4
Cost of additions to internal use
software (12) (14) (20) (24)
Proceeds from divestitures and
investments, net 119 26 186 29
Net change in escrow and other
restricted investments 158 19 191 (34)
------- ------- ------- -------
Net cash provided by (used in)
investing activities 225 (10) 301 (104)
------- ------- ------- -------
Cash Flows from Financing Activities
Cash proceeds from new secured
financings 693 329 1,197 1,142
Debt payments on secured financings (404) (516) (977) (975)
Net cash payments on other debt (500) (2,598) (909) (2,856)
Net proceeds from issuance of
mandatory convertible preferred
stock - 889 - 889
Proceeds from issuances of common
stock 18 457 47 460
Dividends on preferred stock (30) (11) (55) (22)
Dividends to minority shareholders (1) (1) (1) (1)
------- ------- ------- -------
Net cash used in financing
activities (224) (1,451) (698) (1,363)
------- ------- ------- -------
Effect of exchange rate changes on cash
and cash equivalents (13) 23 (37) 18
------- ------- ------- -------
Increase (decrease) in cash and cash
equivalents 244 (756) 65 (608)
Cash and cash equivalents at beginning
of period 2,298 3,035 2,477 2,887
------- ------- ------- -------
Cash and cash equivalents at end of
period $2,542 $2,279 $2,542 $2,279
------- ------- ------- -------
Xerox Corporation
Segment Revenues and Operating Profit
Three Months Ended June 30,
(in millions, except margins) 2004 2003 Change
---------------------------------------- -----------------------------
Revenues *
Production $1,122 $1,107 1%
Office 1,869 1,923 (3%)
Developing Markets Operations (DMO) 417 445 (6%)
Other 445 445 0%
----------------
Total Revenues $3,853 $3,920 (2%)
----------------
Memo: Color ** $944 $807 17%
Operating Profit *
Production $90 $112 $(22)
Office 199 158 41
DMO 8 52 (44)
Other 35 (86) 121
------------------------
Total Operating Profit $332 $236 $96
========================
Operating Margin *
Production 8.0% 10.1% (2.1) pts
Office 10.6% 8.2% 2.4 pts
DMO 1.9% 11.7% (9.8) pts
Other 7.9% (19.3%) 27.2 pts
-----------------------------
Total Operating Margin 8.6% 6.0% 2.6 pts
-----------------------------
----------------------------------------------------------------------
Reconciliation to pre-tax income
Segment Operating Profit $332 $236
Reconciling items:
Restructuring and asset impairment
charges (33) (37)
2002 credit facility fee write-off - (73)
Allocated item:
Equity in net income of
unconsolidated affiliates (27) (16)
----------------
Pre-tax income $272 $110
================
* In 2004, we reclassified the operations of our Central and
Eastern European entities to DMO. As a result, 2003 revenue of $147
million was reclassified from Production, Office and Other to DMO. The
quarterly impact for the first, second, third and fourth quarters of
2003, respectively, was as follows (in millions): Production: $(8),
$(9), $(10), $(13); Office: $(14), $(15), $(14), $(18); DMO: $32, $35,
$34, $46; Other: $(10), $(11), $(10), $(15). Operating profit was
reclassified for this change as well as for certain other expense
allocations. The quarterly impact for the first, second, third and
forth quarters of 2003, respectively, was as follows (in millions):
Production: $(2), $(1), $(15), $(3); Office: $1, $(2), $(5), $(5);
DMO: $4, $4, $4, $9; Other: $(3), $(1), $16, $(1).
Production: Monochrome 91+ pages per minute (ppm), Color 41+ ppm;
North America & Europe
Office: Monochrome up to 90 ppm; Color up to 40 ppm; North
America & Europe
DMO: Operations in Latin America, Central-Eastern Europe,
Middle East, India, Eurasia, Russia and Africa
Other: Paper, SOHO, Wide Format Systems, Xerox Technology
Enterprises (XTE), consulting, equity income and
non-allocated corporate items
** Color revenues represent a subset of total revenues.
SOURCE: Xerox Corporation
Xerox Corporation Media Contacts: Christa Carone on July 23: 203-968-3086 after July 23: 585-423-5074 christa.carone@usa.xerox.com Bill McKee, 585-423-4476 bill.mckee@usa.xerox.com
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