By Stephen Phillips
As expected, Xerox Corp notched its first quarterly decline in three years yesterday, stung by a distracted sales force, price competition and reduced sales of high-margin products. The imaging and document management giant also painted a bleak short- term outlook with these factors expected to depress earnings through the first half of 2000.
The bad news sent Xerox’s shares crashing to a three-year, closing-price low yesterday of $23.81, down more than 13% for the day. Investors rushed to jettison their holdings and the firm was the most- actively traded stock on the New York Stock Exchange with around 31.24 million shares changing hands. The firm has had 60% of its share value wiped off so far this year, clocking up the biggest decline among the 65 companies comprising the Standard & Poor’s High Technology Composite Index.
Xerox reported net income down 11% on the year-ago period to $339m, or 47 cents a share, matching analysts’ projections, which were downgraded from 58 cents a share 11 days ago after the firm issued a profit warning for the quarter. Earnings for the three months to September 30 included 10 cents a share in one-time gains, 7 cents of which came from liquidating an unclaimed $70m pool set aside to reward high sales performance in the first two quarters. Revenue was up less than 1% to $4.63bn from $4.61bn last year.
Chief financial officer, Barry Romeril piled on the doom, warning that per-share profit for the fourth quarter would be down around 20% on the same period last year, when the firm earned 84 cents a share. The announcement prompted analysts to downgrade their fourth-quarter projections to around 67 cents a share, from a pervious mean of 82 cents, according to financial pollster First Call.
The September quarter is the first time Xerox’s profits have fallen since the third quarter of 1996, when it dropped 2.3%. Aside from this blip, profits have been up at least 12% every quarter since the start of fiscal 1994.
Gross profit margin for the three-month period declined three points to 43.3%, due to what the firm called unfavorable product mix and pricing pressures. A Xerox spokesperson told ComputerWire that cheap network printers and desktop printers aimed at the retail market and sold via resellers claimed sales at the expense of high-end products with larger mark-ups. Poor sales of Xerox’s DocuTech-brand high volume production publishing systems which retail for between $60,000 and $320,000, was particularly damaging the spokesperson said.
Meantime Xerox is coming under fierce competition from Canon Inc and Hewlett-Packard Co who are whittling Xerox’s lead, particularly in the digital copier market, by undercutting prices and beefing up product lines. Chief executive Richard Thoman branded the results totally unacceptable. He said: [The firm’s] shareholders have a right to expect better execution at a time when the competitive environment has intensified.
The companies is in the throes of repositioning itself to sell products in customized bundles of consulting services, software and office hardware from which it aims to tap half of its revenue within the next decade. The makeover is designed to increase cross-selling opportunities for Xerox’s product range, which spans printers, scanners and copiers and, latterly, consulting and outsourcing services. To this end the firm is reconfiguring its sales force around vertical industry sectors as opposed to geographical boundaries and is centralizing its customer administration centers, which will also ratchet down costs.
But the company admitted yesterday that the productivity-sapping internal upheaval has lasted longer than expected. While realizing the benefits of our strategic direction is taking longer than anticipated, the positive effects of these changes should be reflected in stronger results towards the end of the next year, Thoman added.
The company said revenue was also crimped by lower-than-expected results from Fuji Xerox, its joint venture with Japan’s Fuji Photo Film, economic weakness in Brazil, and the dollar’s strength against the European currencies. Excluding the effects of a rising US dollar and results in Brazil, revenue rose 6%, the firm said. Including Brazil but before the dollar’s effect, revenue rose 2%. á
