Xerox Posts First Quarter Revenue Boost

Xerox Corporation's first-quarter 2007 revenue was up by four per cent with post-sales revenue increased by six per cent.

Total revenue of US$3.8 billion grew four per cent in the first quarter, whilst gross margins achieved 40.6 per cent.

The growth was largely driven by a seven per cent increase in post-sale revenue from digital systems.

Gross margins were 40.6 per cent, about a half-point improvement from the first quarter of 2006.

Selling, administrative and general expenses were 24.9 per cent of revenue, a year-over-year improvement of 1.7 points, added the company.

At the same time, post-sale and financing revenue - Xerox's annuity streams that represent more than 70 per cent of total revenue - increased six per cent.

Both total revenue and post-sale revenue included a currency benefit of three percentage points.

The company's earnings included a two-cent charge to reflect its share of a restructuring charge recorded by Fuji Xerox.

The previously announced restructuring was initially expected to be a three-cent charge to Xerox's first-quarter earnings.

Anne M Mulcahy, Xerox's chairman and chief executive officer, commented: "Our growth strategy focuses on increasing our installation base of digital technology through new products and broader distribution, strengthening our leadership in colour and expanding our services business.

Success in these areas builds a healthy annuity stream that serves our company well for the long term." She continued: "Our results in the first quarter show that the strategy is working.

We delivered solid activity gains, grew colour revenue and signed big deals for Xerox's document management services - all of which contribute to steady annuity growth.

Along with progress on the top line, excellent operational performance and improved margins led to a 17 per cent increase in net income and earnings that exceeded our expectations." A fundamental measure of Xerox's business is increasing the number of Xerox systems installed in customers' workplaces, said the company.

That installation activity generates sales of supplies and services that are expected to drive gains in post-sale revenue.

Xerox added that as it accelerated activity in key markets during the first quarter, the continued impact of pricing declines put pressure on equipment sales, which were down two per cent including a two point benefit from currency.

Since the beginning of the year, Xerox has introduced 19 new products, half of which are colour products, surpassing the 14 total product launches in 2006.

The company plans to more than double its number of product launches this year.

More than two-thirds of Xerox's equipment sales come from products launched in the past two years.

Xerox said it is growing colour revenue through the industry's broadest portfolio of colour presses, printers and multi-function devices and new marketing campaigns that promote the quality and affordability of colour printing.

Revenue from colour systems grew 17 per cent in the first quarter and now represents 37 per cent of Xerox's total revenue, which is up four points from the first quarter of 2006.

Xerox claimed that colour presses produce the highest volume of pages in the industry and last year more than 30 billion colour pages were printed on Xerox technology.

In the first quarter, colour pages contributed to a 21 per cent increase in post-sale revenue from colour.

Through multi-year, multi-million dollar contracts, the company's document management services generated nearly US$800 million in annuity revenue in the first quarter, a 10 per cent increase in post-sale revenue from services.

Xerox said its 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 five per cent in the first quarter including a four point currency benefit.

Installations of production mono systems declined seven per cent with growth in light production and continuous feed only partially offsetting declines in higher-end production printing.

Production colour installations grew four per cent reflecting strong activity for the Xerox iGen3 digital press and continued demand for the Docucolor 5000.

Earlier this month, Xerox agreed to acquire Global Imaging Systems for US$1.5 billion, which, upon closing, will give Xerox access to about 200,000 new customers and increase its US distribution to SMB customers by more than 50 per cent.

Expected to close in mid-May, the acquisition of Global Imaging will build on the company's announcement in February to increase its investments in sales channels by providing more products to value-added resellers and independent agents.

Mulcahy said: "We're playing offense in the marketplace and we're playing to win." Xerox generated operating cash flow of US$187 million in the first quarter and closed the quarter with US$1.3 billion in cash and short-term investments.

Since launching its stock buyback program in October 2005, the company to date has re-purchased about 114 million shares, totaling US$1.7 billion of its US$2.5 billion programme.

Xerox expects second-quarter 2007 earnings in the range of 26-28 cents per share.

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