Xerox Reports Third-Quarter Revenue Declines

NORWALK, CT—Oct. 22, 2009—Xerox Corp. (NYSE: XRX) announced today third-quarter 2009 results that include earnings per share of 14 cents and $610 million in operating cash flow.

“Our third-quarter performance reflects our continued disciplined approach to managing cash and reducing costs,” said Ursula M. Burns, Xerox chief executive officer. “As a result, we exceeded our expectations for earnings and operating cash flow, and are benefiting from operational improvements that are mitigating the economic challenges.”

The company reported third-quarter total revenue of $3.7 billion, down 16 percent from third-quarter 2008 including a 2 point negative impact from currency. Post-sale and financing revenue was down 11 percent, or 9 percent in constant currency. Equipment sale revenue declined 29 percent, or 28 percent in constant currency.

“Just as we are closely managing costs, our customers are doing the same and we have not seen a meaningful shift towards increased spending on technology,” she added. “For many of our business clients – small to large – there remains a hesitancy to invest until more economic factors show signs of steady improvement. We expect this trend will continue to put pressure on revenue for the balance of the year.

“At the same time, we’re winning new business from clients who want to reduce their cost base through our industry-leading managed print services,” said Burns. “Scaling our services business has long been a strategic focus. The growth opportunity is significant, customers are demanding more service-related value, and the multi-year contracts provide profitable recurring revenue. These factors give us confidence in the strategic and financial rationale for acquiring Affiliated Computer Services. With this acquisition and the benefits of our existing annuity-based business, we’ll deliver significant revenue growth, cash and earnings expansion.”

Third-quarter operating cash flow was $610 million. Through the third quarter, the company has generated $1.2 billion in operating cash flow, and, as a result, has increased its expectation for the full year to $1.7 billion. Xerox ended the third quarter with a cash balance of $1.2 billion. Total debt was down $938 million through the first three quarters, and the company is on track to reduce total debt by more than $1 billion this year.

Gross margin was 39.8 percent in the third quarter, an increase of over half a point from the prior year. Third-quarter selling, administrative and general expenses were down year over year by $131 million and SAG as a percent of revenue was 27.4 percent.

Xerox expects fourth-quarter 2009 earnings per share in the range of 20 cents to 22 cents, excluding costs related to the acquisition of ACS. The company has increased its full-year earnings expectations to 55 cents to 57 cents per share, which excludes fourth-quarter ACS acquisition related costs. Prior guidance for full-year 2009 was 50 cents to 55 cents per share.