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Xerox focuses on services as printer business declines

A generic picture of a Xerox logo on a photocopier. REUTERS/Catherine Benson
A generic picture of a Xerox logo on a photocopier. REUTERS/Catherine Benson

By Nicola Leske and Sayantani Ghosh

(Reuters) - Printer and copier maker Xerox Corp forecast current-quarter earnings below estimates as it accelerates efforts to transform itself into a technology services provider.

Xerox, whose shares were little changed at midday, also offers services such as managing toll systems and healthcare programs to counter sluggish growth in its printers and copiers business, which accounts for about 40 percent of its revenue.

Services is now the larger part of the company's business and lower margins in IT and business process outsourcing is dragging overall margins.

The company said it expects second-quarter revenue from its document technology business, which includes printers and copiers, to decline in the mid-single digits. Revenue fell 9 percent to $2.14 billion in the business in the first quarter.

Based in Norwalk, Connecticut, Xerox moved into business services with its purchase of Affiliated Computer Services Inc (ACS) for $5.5 billion in 2009 - the company's biggest deal in its 106-year history.

Xerox said it plans to quicken the pace of a restructuring plan kicked off in the last quarter of 2012 and included a 2-cent restructuring charge in its second-quarter forecast.

Xerox said it expects flattish revenue for the full year, compared with previous expectations of up to a 2 percent growth, it said on a conference call with analysts.

The company said it was on track to reach its target of adjusted EPS of $1.09 to $1.15 for the full year and to generate operating cash flow of $2.1 billion to $2.4 billion.

"Europe remains weak. US remains stable, but weak. We have not seen a pickup in the US," Xerox CEO Ursula Burns said on a conference call with analysts.

"We did see a slowdown, a bit of a slowdown, in some developing market economies. But our business model is fairly resilient in the developing markets," she said.

Smaller rival Lexmark International Inc's first-quarter revenue beat expectations and the company forecast second-quarter revenue largely above estimates, sending its shares up 12 percent.

For the second quarter, Xerox forecast earnings, excluding items, of 23 cents to 25 cents per share. Analysts on average were expecting 26 cents per share, according to Thomson Reuters I/B/E/S.

The company had forecast the same EPS range for the first quarter but reported higher adjusted earnings of 27 cents per share due to a benefit of 2 cents after reducing its reserve for recent litigation. It beat analyst estimate of 24 cents.

"The key driver in the litigation reserve benefit is a positive ruling by a judge on our securities litigation dating back to early 2000s," a spokesman said.

Revenue in the first quarter fell 3 percent to $5.36 billion, below analyst expectations of $5.5 billion. Revenue from the company's services business rose 4 percent.

(Editing by Jeffrey Benkoe and Maureen Bavdek; Editing by Don Sebastian)

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