2nd UPDATE: Xerox Cuts 1Q EPS View As Tech Spending Slumps
March 20 2009 - 11:05AM
Dow Jones News
Xerox Corp. (XRX) sees first-quarter earnings well below
already-downbeat expectations in part on slumping spending by
corporations around the world.
Shares fell 19% to $4.32 Friday. The stock is down more than 40%
since the beginning of 2009 and has fallen more than 60% since
early September.
The Norwalk, Conn. company makes printers for both offices and
large-scale production, but garners most of its sales from its
services businesses, which include maintenance contracts, printing
supplies and lease revenues. Xerox takes in the majority of its
revenues from overseas, and the spread of the downturn
internationally as well as the strengthening dollar have likely
hurt sales numbers abroad.
Xerox also plans to cut another $300 million in costs, though
details on where the savings would come from weren't disclosed. The
cost cuts come on top of plans to save $250 million this year,
largely from last year's 5% cut in the work force.
Industry prospects aren't bright near-term, said Chairman and
Chief Executive Anne Mulcahy, who noted Xerox expects "enterprise
spending on technology will continue to decline this year."
The company now sees first-quarter earnings of 3 cents to 5
cents a share, down from a January view of 16 cents to 20 cents a
share that was below analysts' then-expectations. Six cents of the
shortfall is due to restructuring charges and earnings weakness at
25%-owned partner Fuji Xerox Corp. The rest is from the
industrywide slump caused by "the increasingly more challenging
global economic environment."
Xerox added that revenue in January and February was down 18%,
with 5 percentage points of that due to the weaker dollar.
"We believe Xerox' results reflect an extremely weak end market
for tech hardware, ...a continued contraction at the distributor
level for supplies and some slowdown in page volume," said Shanon
Cross of Cross Research in a note to clients. "We expect to see
weakness across all printing and imaging companies."
Like most other businesses, Xerox is battling falling sales
brought on by the recession. As a result, the company and rivals
are increasingly pushing consulting services that show companies
how to eliminate desktop printers and force workers to share
multifunction devices that copy, print and fax.
Despite the woes, Mulcahy said Xerox has been increasing market
share and expects that to continue "even in this challenging
environment."
Debt reduction also is a focus, as it also is at numerous other
firms during a time when the credit markets remained constrained
and refinancing remains difficult for even the highest-rated
borrowers. Xerox said debt levels will fall this year and plans are
to continue paring it through the year. Since it has access to a $2
billion line of credit, the company plans to access the credit
markets "only on an opportunistic basis."
Still, Standard & Poor's cut its ratings outlook on Xerox to
negative from stable. Credit analyst Lucy Petricola said global
economic weakness, reduced IT spending and "highly competitive
industry conditions" will put pressure on Xerox's revenue and
operating earnings in 2009.
Xerox will release its first-quarter results April 24, at which
time it will also update its 2009 forecast.
-By Mike Barris and Jerry A. DiColo, Dow Jones Newswires;
201-938-5670; mike.barris@dowjones.com;
jerry.dicolo@dowjones.com