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Xerox misses FY12 earnings target

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logoDespite three successive quarters downgrading FY12's adjusted earnings per share (EPS) target (see Xerox lowers guidance, again and work back), Xerox’s FY12 adjusted EPS still missed the mark.

At $1.03 per share, EPS was c4-6% off its most recent downgrade in October (EPS of between $1.07-$1.09), and c10% off estimates given this time last year (see here). Investors however were pleased that Q4 marginally beat expectations, and pushed Xerox’s shares up c3%.

We can’t see much in the numbers to get excited about. Headline revenue was flat in constant currency (ccy) in both Q4 and the full year at $5.9bn and $22.4bn respectively. Xerox had expected FY12 revenue growth of 2% this time last year.

After taking into account restructuring costs, and other nasty bits, pre-tax margins fell to 6.2% in Q412 (vs. 7.5% last time) and to 6% in FY12 (vs. 6.9%). Q4 also included a $96m charge for some 4,300 job cuts in the Services and Document Technology divisions, primarily in North America.

Yet again services kept the ship from sinking altogether. Q4 and FY12 revenue was up 7% in constant currency (ccy), driven by BPO (up 8% in Q4 to $1.7bn and up 10% in the full year to $6.6bn ccy), and ITO, which grew 16% in Q4 to $389m, and up 8% over the year to $1.4bn. Document outsourcing was more subdued at 2% and 5% growth Q4/FY. The services margin also went up almost a point to 11.2% thanks to the cost cutting programme.

Services is however going to be in for a rough ride in 2013 since FY12 signings were down 25% on the previous year at $10.9bn. Even though renewals went up, it is clear that new business is on the decline and plugging the gap will be no mean feat given the macro environment. Xerox has been relying till now on M&A to keep the services top line moving in the right direction (see here and work back). But given the spread and breadth of deals, the whole thing is already looking a tad unwieldy, and the strategy behind it unclear.

Then, there’s the severe continuing decline in Xerox's copier technology business. Document technology revenue was down 8% ccy in Q4 (down 6% in the full year), and Q4 equipment sales were down an ugly 14%. Rumours are surfacing over the future shape of competitors HP and Dell (see here). Perhaps we should turn the spotlight on another.


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