Xerox Improves Bottom Line

Computergram International, April 23, 1999

Xerox Corp reported first-quarter results that showed the emerging benefits of the company's restructuring activities. The Stamford, Connecticut-based imaging giant posted net income of $343m, up from $111m in the year ago quarter. Revenue was flat at $4.3bn, but cost controls led to improved operating margins and the larger bottom line. Earnings per share came in at $0.48, up from $0.16 last year, and matched the First Call consensus.

Results from the year-ago quarter included a net loss of $190m from discontinued operations, but even with those results factored out, net income still rose 14% on a year-over-year basis. Operating profit margin was up 1.1 percentage points in the quarter at 12.8%, as selling, general and administrative expenses declined 2%. The restructuring program, which the company announced a year ago, is ongoing and roughly 1,000 employees left the company in the first quarter, bringing the total jobs cut thus far to 6,400.

Aside from discontinued operations, an economic slowdown in Brazil and other Latin American countries, operational factors in the US and Europe and currency exchange affected the top line in the quarter. The company said that "pre-currency" revenues, excluding Brazil, rose 3%, with revenue growth of 4% in the US and 2% in Europe.

Xerox added that certain new initiatives required substantial one-time investment during the quarter to cover enhanced sales training and development and some changes in customer relationships. The issues are said to have impacted sales productivity more than the company anticipated, but management insists that it expects revenue growth will improve as the year progresses - and pledges its commitment to delivering "mid- to high teens earnings-per-share growth through the remainder of 1999 and beyond."

Digital product revenues rose 28% in the quarter and now make up roughly half of total company revenues. That growth was fueled mainly by digital black-and-white copiers, growth in monochrome network laser printers sold through indirect channels and growth in production publishing. Black-and-white light-lens copier revenues dropped 24% in the quarter largely as a result of the problems in Brazil, increased pricing pressures and customer transition to digital copiers, the company said.