Xerox Meets Street as Profit Drops, Sees Q2 EPS Up

Xerox Corp, best-known for its office copiers and printers, forecast an earnings rise in the second quarter after it reported a lower quarterly net profit in line with expectations.

Xerox shares gained 3.7 percent in premarket trading to $8.16. They closed at $7.87 on Friday on the New York Stock Exchange.

The company, which gets more than half of its total revenue from its services segment that includes processing credit card applications, expects investments in the business to pressure margins in the short term but said it will compensate with cost reductions and operational improvements.

"Our business mix continues to change as we significantly scale our revenue in services and invest in growth through new offerings and long-term contracts," Chief Executive Ursula Burns said in a statement.

For the second quarter, the company expects a profit of 25 cents to 28 cents per share, excluding items, largely in line with analysts' average expectations of 26 cents per share, according to Thomson Reuters I/B/E/S.

Brean Murray Carret & Co said that Xerox's second-quarter outlook was stronger than Street estimates.

"Xerox continues to work on honing the cost structure and get the benefit of ramping services deals that they've "set up" and are now beginning to get leverage from revenue," Brean Murray Carret analyst Ananda Baruah said in a note.

Xerox reiterated its full year goals of reaching adjusted EPS of $1.12 to $1.18 and an operating cash flow of $2 billion to $2.3 billion.

The company said last quarter that it was experiencing problems at its technology unit, hurt by economic weakness in Europe, but growth in its services business had compensated for the decline.

Technology revenue, which includes the sale of document systems, supplies, technical service and financing of products, declined 5 percent in the first three months of the year impacted by a weak macro environment and customers' shift to Xerox managed print services, Xerox said.

Net income attributable to Xerox in the first quarter fell 4 percent to $269 million, or 19 cents per share, while operating margin fell of 0.6 percentage points to 8.5 percent.

Excluding items, the company earned 23 cents a share, in line with estimates

Revenue rose 1 percent to $5.50 billion, versus analysts' estimates of $5.45 billion.

According to equity research firm Starmine, which gives more weight to estimates from analysts with a better track record, Xerox is traded at 6.8 times 12-month forward earnings.

That compares with rival printer-maker Lexmark which is valued at 7.0 times and larger consultancy firm Accenture at 15.3 times. (Reporting by Sayantani Ghosh in Bangalore and Nicola Leske in New York; Editing by Unnikrishnan Nair, Roshni Menon, Dave Zimmerman)