Xerox Continues Improvement On Back Of Colour

Xerox has announced second-quarter 2006 earnings per share of 26 cents and total revenue of US$4 billion.

Xerox has announced second-quarter 2006 earnings per share of 26 cents and total revenue of US$4 billion.

Total revenue grew one per cent in the second quarter, whilst post-sale and financing revenue, which represents about 75 per cent of Xerox's total revenue, increased two per cent, largely driven by four per cent post-sale growth from digital systems.

Currency had a negligible impact on total and post-sale revenue.

Xerox said that its strategy to boost revenue through annuity from colour products and services contracts also contributed to post-sale growth with a 16 per cent increase in colour post-sale revenue and five per cent post-sale growth from global services.

Contract signings for document management services were up more than 15 per cent in the quarter.

Anne M Mulcahy, Xerox chairman and chief executive officer, said: "Our second-quarter performance reflects the positive track Xerox is on to grow revenue whilst remaining cost-effective and competitive.

Revenue is up - the benefit of increasing installation rates of Xerox digital and colour systems, as well as continued demand for our document management services, all of which fuels our healthy annuity stream." She added: "Through a disciplined focus on costs and operational improvements, we increased gross margins and delivered solid bottom-line results.

During the second quarter, we also announced the acquisition of Amici, an e-discovery company whose products strengthen our services portfolio.

We also re-purchased US$225 million more in Xerox stock, nearly completing the US$1 billion programme.

Our financial strength allows us now to increase the buyback programme by another US$500 million." She explained that it all added up to consistent, steadily improving progress that would provide profitable returns and value for the company's shareholders.

Revenue from Xerox's colour systems grew 14 per cent in the second quarter and now represents 34 per cent of total revenue.

"The number of pages printed on Xerox colour systems grew 40 per cent in the quarter.

Pages are the power of the annuity stream as the increasing volume of colour pages flows through to post-sale revenue," said Mulcahy, whilst noting that 44 per cent of Xerox's equipment sales now come from colour products, a 10 point increase from two years ago.

The company has expanded its colour systems range with five new systems including the Docucolor 5000 mid-level digital production colour press, as well as a colour printer, digital copiers and multi-function products aimed at offices.

Equipment sales revenue was flat in the quarter and down one per cent in constant currency.

Installations of key products, such as colour presses and Workcentre multi-function systems drove up activity in the company's production and office businesses.

Xerox's production business provides commercial printers and document-intensive industries with high-speed digital printing and services that enable on-demand, personalised printing.

Total production revenue increased one per cent in the second quarter and was flat in constant currency.

Installations of production mono systems increased nine per cent, reflecting the continued success of the Xerox 4110 light production system.

Production colour installations grew 96 per cent as strong demand continued for the Docucolor 240/250 multi-function device, Xerox's entry production colour system that prints, copies and scans.

Xerox's office business provides document technology and services for businesses of any size.

Total office revenue was up one per cent and flat in constant currency.

Installations of office mono systems were down four per cent with 12 per cent growth from mid-range systems, which generate higher page volumes, only partially offsetting declines in desktop devices, said the company.

In office colour, installations of multi-function systems were up 13 per cent driven by the continued success of the office version of the Docucolor 240/250 system.

The company also cited continued improvement in its developing markets operations.

Total revenue grew seven per cent in DMO.

Gross margins were 41.1 per cent, a year-over-year increase of 0.7 points and a nearly one point improvement from the first quarter of this year.

The company's selling, administrative and general expenses were 25.6 per cent of revenue, a year-over-year decline of 1.1 points.

In the second quarter, Xerox generated operating cash flow of US$220 million after contributing US$226 million to its US pension plans.

The company closed the quarter with US$1.2 billion in cash and short-term investments.

Debt declined US$1 billion year over year and about US$600 million from the first quarter of this year.

Through the first half of 2006, Xerox re-purchased US$895 million of its stock since launching the buy-back programme in October 2005.

The company's board has also authorised the repurchase of another US$500 million.

Xerox expects third-quarter 2006 earnings in the range of 20 cents -22 cents per share.

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