July 22, 2011 / 11:11 AM / in 7 years

Xerox's profit beats Street, raises forecast

NEW YORK (Reuters) - Xerox Corp (XRX.N) raised its earnings forecast, indicating that its focus on providing corporate clients with more than just printers and copiers was starting to pay off.

A generic picture of a Xerox logo on a photocopier. TECOM REUTERS/Catherine Benson

The company, whose shares were up 1 percent in premarket trading, raised its 2011 earnings outlook to a range of $1.07 to $1.12 per share, compared to analysts’ expectations of $1.04 to $1.10 per share.

Xerox’s profit also rose 39 percent in the second quarter.

The quarterly results combined with the stronger earnings forecast reflect’s Xerox’s improved revenue model, Gabelli &Company analyst Hendi Susanto said.

“Overall this shows a continuity of stability of annuity revenue,” Susanto said.

Annuity revenue is the predictable stream of money that Xerox makes from signing deals with companies to provide printers and copiers or services over a period of several years.

Xerox, which performs a range of services from managing the E-ZPass electronic tolling system in several states, said on Friday its services business contributed more revenue than its traditional copier and printer business in the quarter.

Its services business rose 6 percent, which included a 2 percentage point bump from the weaker dollar. Overall services business revenue totaled $2.67 billion, which makes up 48 percent of the business.

The company’s business of selling printers, copiers, toners and ink generated $2.5 billion in revenue, representing about 45 percent of the company’s revenue.

Adjusted for various charges, Xerox reported earnings per share of 27 cents, which beat Wall Street analysts’ average estimate of 24 cents per share, according to Thomson Reuters I/B/E/S. Its total revenue increased 2 percent to $5.6 billion, which was in line with analysts’ estimates.

But revenue would have been higher had it not been for supply disruptions in Japan. Xerox said in a statement that the earthquake in Japan hurt revenue by putting constraints on its color supplies, which are sourced from its Fuji Xerox plant in the country.

Xerox’s net income increased to $327 million, or 22 cents per share, from $236 million, or 16 cents per share, a year earlier.

The value of the company’s contract signings fell 15 percent, which it blamed on the cyclical nature of large corporate deals.

Xerox, which competes with Hewlett-Packard (HPQ.N), had about $1 billion in cash at the end of the quarter, which it said it would use for “modestly-sized acquisitions” and to buy back shares. It expects to buy $700 million of stock in the second half of the year.

In the quarter, the company said it employed 133,500 workers globally, which is 3,000 fewer employees than a year earlier. A company spokesman said in an email that in the past quarter, it cut 500 jobs, “which is based on attrition and the ebb-and-flow of the contracts that we have.”

Shares were up 10 cents, or 1 percent at $10.40 in premarket trading.

Reporting by Liana B. Baker; Editing by Lisa Von Ahn and Derek Caney

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