Xerox Corporation (XRX) has showed an improvement in profit to $224 million or 18 cents per share (before special items) in the first quarter of the year from $73 million or 8 cents per share (before special items) in the year-ago quarter. With this, the company outdid the Zacks Consensus Estimate of 13 cents per share.

Consolidated revenues rose 33% to $4.72 billion, including the results of Affiliated Computer Services Inc. (“ACS”) since February 5, 2010. Equipment sales increased 7% to $822 million, driven by a growth in install activity, partially offset by the impact of product mix and price declines of 5%–10%.

Supplies, paper and other sales increased 18% to $856 million, driven by the purchase of channel supplies. Service, outsourcing and rentals revenues rose 53% to $2.87 million, reflecting an improvement in outsourcing revenues. However, income from financial services fell 4% to $173 million.

The improvement in results was primarily attributable to a strong demand for Xerox’s document technology in developing markets and from small and mid-sized businesses.

Segment Results

Xerox has realigned its internal financial reporting structure in 2010 due to the acquisition of ACS. The company has begun reporting its financial performance based on two primary segments — Technology, Services, and Other.

The Technology segment represents the combination of its former Production and Office segments, excluding the document outsourcing business, which was previously included in these reportable segments.

The Services segment represents the combination of its document outsourcing business, which includes Xerox’s historic business process services as well as ACS’s business process outsourcing and information technology outsourcing businesses.

The Other segment remains the same. This segment provides cut-sheet paper, value-added services, wide-format systems, Geographic Information System network integration solutions and electronic presentation systems.

Revenues in the Technology segment grew 6% to $2.48 billion. Segment profit increased $67 million over the first quarter 2009 to $233 million.

Revenues in the Services segment went up 121% to $1.84 billion. This segment comprises three service offerings: Business Process Outsourcing (“BPO”), Document Outsourcing (“DO”) and Information Technology Outsourcing (“ITO”). Segment profit increased 17% to $203 million, driven by BPO volume growth including new BPO contract implementations and prior DO expense actions to more appropriately align its business model.

Revenues in the Other segment inched up 2% to $395 million due to an increase in revenue from paper products. Paper products comprised about 60% of the segment revenue. The segment reported a loss of $104 million, an increase of $9 million from first quarter 2009, driven primarily by higher interest expense.

Financial Position

Xerox ended the quarter with a cash balance of $1 billion. Total debt increased to $9.96 billion as of March 31, 2010 from $9.26 billion as of December 31, 2009. Total debt-to-capitalization ratio stood at 47% as of March 31, 2010.

In the first quarter, cash flow from operating activities was $375 million, reflecting the inclusion of ACS as well as $75 million of cash outflow for acquisition-related costs. Capital expenditures increased to $51 million from $37 million in the previous-year quarter.

Outlook

Xerox expects to earn 20 to 22 cents per share before special items in the second quarter of the year. For full year 2010, the company’s projected EPS is at the high end of its previous guidance of 75 to 85 cents per share.
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