Xerox Growth In Colour Products And Graphic Arts

Xerox has reported fourth-quarter 2004 earnings of 24 cents per share that reflect increased sales of colour technology and demand for document services.

Xerox has reported fourth-quarter 2004 earnings of 24 cents per share that reflect increased sales of colour technology and demand for document services.

The company said that equipment sales grew about three per cent in the fourth quarter and total revenue was $4.3 billion, an increase of one per cent from the fourth quarter of 2003.

Both equipment sales and total revenue included a currency benefit of three percentage points.

Fourth-quarter revenue from Xerox's targeted growth areas - production digital, value-added services and office digital - grew five per cent year over year and now represents about 76 per cent of the company's revenue.

Revenue from colour products grew 21 per cent in the fourth quarter and the company said it is a key driver of Xerox's growth strategy as the increasing volume of pages printed on its colour systems flows through to post-sale revenue.

Colour revenue represents 27 per cent of Xerox's total revenue, a year-over-year increase of five per centage points.

The company said that it continues to deliver double-digit growth in Xerox Global Services, which offers consulting, imaging and content management services.

Increasingly, information technology companies are becoming partners with Xerox to integrate its expertise in document management with IT infrastructure services.

Last month, Xerox and EDS announced a $40 million contract with Barclays Plc to manage Barclays' procurement, service and helpdesk for more than 2,250 Xerox and other devices across nearly 200 Barclays Group office sites in the United Kingdom.

Revenue from Xerox's value-added services such as that grew 25 per cent in the fourth quarter.

Through the company's production business, it believes it continues to lead what it describes as the 'new business of printing' by helping commercial printers and document-intensive industries complement offset printing with the more dynamic world of digital.

Production systems' revenue was up one per cent in the fourth quarter, largely due to a 10 per cent increase in equipment sales.

Installations in the fourth quarter were more heavily weighted toward higher-end digital colour systems like the iGen3 and Docucolor 8000, which generate strong revenue and higher page volumes that flow through to future post-sale growth.

As a result, production colour installations were down four per cent and installations in monochrome systems declined by nine per cent.

For production monochrome, the success of the Nuvera copier-printer light production systems only partially offset declines from light lens as well as declines in production publishing.

In that segment, activity was affected by customers choosing to delay purchases until the North American launch of the Nuvera digital system scheduled for next month.

"In 2004 Xerox announced 40 new products, accelerated the growth of Xerox Global Services by helping customers streamline work processes and drove demand for our colour technology with the iGen3 digital colour press, Docucolor systems and Phaser solid ink printers," said Anne M.

Mulcahy, Xerox's chairman and chief executive officer.

"We're winning customers and beating the competition by delivering smarter document management that reduces costs and improves productivity for small to large businesses.

At the same time, we continue to strengthen our operations through a sharp focus on reducing costs and debt, generating significant operating cash flow and increasing shareholder value.

The end result is that we delivered another quarter - and another year - of earnings growth, driven by a rich product portfolio and a lean business model," she added.

The company added that total revenue from its office business was flat with equipment sales down one per cent in the fourth quarter largely due to product mix - the company sold a greater proportion of lower-priced desktop units compared to the fourth quarter of 2003.

However, installations were strong with office colour multifunction systems up 17 per cent and office colour printing installations up 135 per cent driven by laser and solid ink printers.

Installations of office monochrome products were up six per cent, which reflected strong placements of Workcentre desktop multifunction systems.

Xerox said it continues to bolster its line-up of competitively priced office systems designed for workgroups of any size.

In the fourth quarter, the company launched 12 new office products.

Earlier this month, the company announced eight more products including two high-speed multifunction systems and digital copiers that target the 41-90 pages-per-minute segment of the market, which represents a substantial portion of the office business, the company believes.

The company reported fourth-quarter selling, administrative and general expenses of 25 per cent of revenue, its lowest in the past decade.

Fourth-quarter gross margins were 40.1 per cent, reflecting particularly strong performance in desktop office products and light production systems that had an effect on the traditional product mix.

The decline in gross profit from decreased revenue in Brazil also had an adverse impact on the company's overall gross margins.

Xerox generated operating cash flow of $816 million in the fourth quarter and ended the year with $1.8 billion in operating cash flow after contributing about $400 million to pension plans.

The company's year-end cash balance was $3.2 billion, an increase of about $750 million from year-end 2003.

Debt was down more than $1 billion year over year.

For the first quarter of 2005, Mulcahy said she expected earnings in the range of 17-20 cents per share.

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