SAN FRANCISCO – Xerox Corp.'s second-quarter profit skidded 19 percent, but matched Wall Street's forecast, as the office-equipment maker was hurt by restructuring charges while its cash-cow supplies and services business hummed along smoothly.
The Norwalk, Conn.-based company makes most of its money from selling ink and other supplies to companies that have already bought or leased Xerox printers, copiers and other machinery, a reliable business that grew 10 percent in the April-June period compared with last year.
The consistency of that business, coupled with the growing demand for expensive color ink and technical support to help companies manage their ever-expanding hordes of digital documents, helped Xerox expand in line with analyst expectations.
Xerox said Thursday that net income in the second quarter was $215 million, or 24 cents per share, down from the $266 million, or 28 cents per share, in the year-ago period. Analysts surveyed by Thomson Financial were expecting 24 cents per share in profit.
Were it not for previously announced restructuring charges, however, Xerox's profit would have been 5 cents per share higher, topping last year's figure by a penny per share. Xerox continues to cut costs as it looks for ways to improve its profitability.
The restructuring charges were mostly to account for job cuts in the second quarter. Xerox shed roughly 1,000 employees, most of them in North America, as part of its efforts to reduce expenses. The company ended the quarter with 58,000 workers.
Sales were $4.53 billion, an 8 percent improvement over last year and exactly in line with analysts' average estimate.
Roughly 70 percent of Xerox's revenue comes from its so-called “post-sale” business, which contributed $3.37 billion in the second quarter. That was up 10 percent over the previous year. The number rises as Xerox's customers print more pages – especially color pages – on machines they already have and enlist more of Xerox's technical services.
Equipment sales, which are more vulnerable to economic pressures and swings in discretionary technology spending, grew just 2 percent to $1.16 billion. Instead of focusing on selling more new equipment, Xerox relies more heavily on its existing customer base consuming more of its products.
The company is also benefiting from its $1.5 billion acquisition of Global Imaging Systems, a deal completed in May 2007 that gives Xerox a sales force specializing in office equipment for small- and medium-sized businesses. That category is attractive to Xerox because smaller companies can't demand the deep volume discounts that large enterprises do, so while volume is lighter Xerox can often make more money off those transactions.
Xerox Chief Executive Anne Mulcahy said the company's steady, annuity-like revenue helped offset weakness in the U.S. economy that's making it harder to complete deals with large corporations, many of which have curtailed spending. She said the “consistent positive performance” of Xerox's sales to small- and midsized businesses and strong results from developing countries have been bright spots for the company.
“We have the flexibility to be aggressive in the marketplace while delivering on our earnings expectations,” Mulcahy said in a statement.
Guidance was in line with analysts' expectations.
Xerox expects between 28 cents and 30 cents per share in profit for the third quarter, which ends in September. Analysts were expecting 29 cents.
The company reaffirmed its full-year profit guidance of $1.26 per share to $1.30 per share.
The company's shares fell 20 cents, or 1.43 percent, to $13.83 in early morning trading.
