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Xerox Sees $100M Charge in 4Q

Zacks Equity Research

Xerox Corp. (XRX) said that it will incur a restructuring charge of $100 million or 5 cents per share in the fourth quarter of 2012. The company intends to undertake restructuring actions in the wake of a weak economic environment to make its service business more cost efficient. The company will incur a $55 million charge for the services business and $45 million for the document technology segment.

Consequently, the company reduced its adjusted earnings per share guidance to 28 cents to 30 cents from the prior guidance of 33 cents to 35 cents. Earnings, on a reported basis, are projected in a range of 24 cents to 26 cents a share. Analysts polled by Zacks are currently expecting earnings of 28 cents a share on an average.

Moreover, the company’s board has approved an additional $1 billion for future share repurchases. The board also plans a 35% hike in the quarterly dividend to $0.0575 per share (or 23 cents a share annualized), payable on April 30, 2013. The move will further enhance shareholders’ value going forward.

The company projected adjusted earnings per share in the range of $1.09 to $1.15 per share for 2013. Revenues will likely remain flat or increase 2% in 2013. In addition, the company anticipates operating cash flow of between $2.1 billion and $2.4 billion in 2013.

Xerox reported adjusted earnings of 25 cents per share in the third quarter of 2012, in line with the Zacks Consensus Estimate. However, profit declined 11% to $333 million (or a penny per share) in the quarter from $374 million (or 26 cents a share) a year ago. Revenues declined 3% (down 1% in constant currency) year over year to $5.42 billion in the quarter, marginally missing the Zacks Consensus Estimate of $5.49 billion.

Xerox, headquartered in Norwalk, Connecticut, is a leader in the development, manufacture, marketing, servicing and financing of document equipment across the world. We believe that the company will benefit from the new deals signed and successful acquisitions.

However, intense competition from its peers – including Canon, Inc. (CAJ) and Hewlett-Packard Company (HPQ) – might affect the company’s results. Currently, Xerox holds a short-term (1 to 3 months) Zacks #3 Rank (Hold). We have a long-term (more than 6 months) Neutral recommendation on its shares.

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