Xerox 1Q earnings meet revised outlook

NEW YORK — Xerox Corp. met lowered expectations for first-quarter earnings Friday, but said slower spending on printing equipment and supplies continued to hurt sales, a trend the company projected to continue for at least the next few months.

The company earned $42 million, or 5 cents per share, in the quarter, topping Wall Street forecasts by a penny, according to Thomson Reuters.

That compares with a loss of $244 million, or 27 cents per share, a year ago, when a hefty litigation charge pushed the company to a loss.

Shares rose 21 cents, or 3.7 percent, to close at $5.95.

But Xerox said the global downturn kept IT budgets tight and inventory among distributors thin. Revenue fell 18 percent to $3.55 billion from $4.34 billion. Analysts expected revenue of $3.54 billion, on average.

In a conference call with analysts, Chief Executive Anne Mulcahy tamped down expectations for a quick recovery. “People are going to manage with less for some time to come,” She said. “We’re not counting on a return to the past in any way.”

Instead Xerox has been cutting costs, looking to save $550 million in 2009 though layoffs announced last year and other expense cuts.

The company said in October it would be cutting 3,000 jobs and announced in March it was suspending its 401(k) matching plan in the U.S., freezing salaries and trimming discretionary spending like travel and overtime.

Xerox also cut its debt load by $485 million in the latest quarter and plans to reduce overall debt by $1 billion this year.

After the company slashed its earnings forecast for the first quarter in March, Fitch and Standard & Poor’s Ratings Services both cut their ratings outlook for Xerox to “Negative” from “Stable,” making a downgrade more likely.

Xerox said its outlook had deteriorated in part because of disappointing earnings for its 25 percent stake in Fuji Xerox Co., a partnership that markets Xerox equipment in Japan and other Pacific Rim countries.

Restructuring charges at Fuji Xerox cost the company 2 cents per share in the first quarter, Xerox said Friday.

But delayed equipment orders and low inventories at distributors worried about uncertain demand also hit sales.

The company said equipment sales fell 30 percent to $770 million. So-called “post sale revenue,” which includes the sale of ink and other supplies to companies that already own or lease Xerox machines, fell 14 percent to $2.78 billion.

Developing markets, which accounted for about 10 percent of revenue in the quarter, saw a steeper decline, with equipment sales down 53 percent and post sale revenue falling 24 percent.

The company’s gross margin declined to 38.9 percent from 39.3 percent in the year-ago quarter — a drop Xerox attributed mainly to unfavorable exchange rates.

Xerox predicted second-quarter earnings of 10 cents to 12 cents per share; analysts expect 14 cents per share. For the full year, the company expects a profit of 50 cents to 55 cents per share, compared with analysts’ expectation for 58 cents per share.

In a call with investors, the company also said it would be introducing a new printer during the quarter that would cut the cost of color printing significantly. Xerox said it will be timing the full rollout carefully and doesn’t expect to see a financial impact until next year.

AP Technology Writer Rachel Metz in New York contributed to this report.