Bloomberg News

Xerox Drops After Low End of 2012 Forecast Trails Estimates

January 26, 2012

(Updates with closing share price in second paragraph.)

Jan. 25 (Bloomberg) -- Xerox Corp., the provider of printers and business services, declined the most in more than two years after giving earnings forecasts that trailed some analysts’ estimates as Europe weakens.

The company fell 9.9 percent to $7.81 at the close in New York, for the biggest one-day slide since Sept. 28, 2009, after presenting forecasts for this quarter and the full year. It was the second-worst performer in the Standard & Poor’s 500 Index.

Europe weakened noticeably during the fourth quarter, Chief Executive Officer Ursula Burns said today. Xerox diversified into business services as slow economic growth weighs on information-technology spending. The World Bank cut its global- growth forecast this month, saying a recession in the euro region may exacerbate a slowdown in emerging markets.

The earnings forecast “is a bit softer than hoped for,” Ananda Baruah, an analyst at New York-based Brean Murray Carret & Co., said in a note to clients. “We’re hopeful that Xerox has injected a healthy dose of conservatism into the 2012 guidance given headwinds” from Europe and foreign exchange.

Earnings, excluding some items, will be 21 cents to 24 cents a share this quarter and $1.12 to $1.18 a share this year, Norwalk, Connecticut-based Xerox said today. Analysts predicted 24 cents for the quarter and $1.17 for the year, the average estimates compiled by Bloomberg.

Services Focus

The weakness is “all over Europe,” Burns said on a conference call. “Obviously southern Europe, Italy, Spain, Portugal, Greece etc. are worse than the rest of Europe, but we do see weakness even in the stronger countries where decisions are delayed and activity is a little bit lower.”

Xerox added business-process services to its document- management and printing expertise with its 2010 acquisition of Affiliated Computer Services Inc. The purchase, Xerox’s largest, gave it growing markets, including managing and automating electronic payments for governments.

The company signed $4.2 billion of new outsourcing business in the fourth quarter, up 15 percent from a year ago, Chief Financial Officer Luca Maestri said on the call. Signings generally incur higher upfront costs and deliver earnings later.

The company plans to spend between $300 million and $400 million on acquisitions this year, primarily on tuck-in services businesses, Maestri said.

Stock Buybacks

Fourth-quarter net income rose to $375 million from $171 million a year earlier, Xerox said. Earnings excluding some items climbed to 33 cents a share, matching the average analyst estimate. Sales were little changed at $5.96 billion, missing the $6.07 billion estimated by analysts.

The company spent $392 million repurchasing its shares in the fourth quarter, and added $500 million to its buyback plan, boosting the authorized total to $1.3 billion, according to a filing today. Between $900 million and $1.1 billion will be spent on buybacks this year, mostly in the second half, Xerox said on the call.

Xerox will sell some shares in the first half of 2012 to make pension contributions that have required top-ups since last year because of low benchmark interest rates, Maestri said.

--Editors: Niamh Ring, James Callan

To contact the reporter on this story: Beth Jinks in New York at bjinks1@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net


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