Xerox Profit Rises on High-Margin Color Systems

Douglas Healey

Xerox, the leading provider of digital printers and document management services, posted Thursday a 78 percent rise in quarterly profit fueled by growing revenue from financing and supplies, sending its stock up over 7 percent.

The company, whose growth is driven by sales of high-end printing machines and services, also said it is on track to meet its 2008 full-year profit forecast, and plans to increase its stock buyback plan by $1 billion.

Xerox has rebounded from fiscal troubles earlier this decade to renewed optimism, spurred by solid profits and improved market share. It is still looking to boost revenue, but the company expects that over time its digital sales will yield higher profit margins.

Moreover, it says that more than 70 percent of revenue is now recurring through lucrative long-term supply, financing and service deals to its commercial printing customers.

"Their restructuring has changed the direction of the company fundamentally and strengthened it," said Tim Ghriskey, chief investment officer at Solaris Asset Management, which does not hold Xerox shares. "The focus on renewables is a strategy that has worked for others like HP and Xerox appears to be making it work."

Xerox's net income in the fourth quarter rose to $382 million, or 41 cents a share, from $214 million, or 22 cents a share, a year earlier. The 2006 period included 16 cents a share in restructuring costs.

Total revenue rose 11 percent to $4.88 billion.

Wall Street analysts had expected a profit of 40 cents a share on revenue of $4.83 billion, according to Reuters Estimates.

During the fourth quarter, revenue from color systems and services rose 14 percent and now represents 40 percent of Xerox's total sales. Gross profit for color printed pages is five times greater than from black and white.

The company sees its first quarter profit in the range of 25 to 28 cents a share. Analysts on average estimate the profit at 27 cents a share, according to Reuters Estimates.

Shares of Norwalk, Connecticut-based Xerox jumped 7.8 percent in pre-open trade on Thursday, climbing to about $14.25 a share.

Xerox shares slipped on Wednesday to a 27-month low of $12.47 on the New York Stock Exchange, amid broader declines sparked by concerns a weak U.S. economy would hurt capital spending.

The stock, which closed at $13.25 after the overall market recovered, has declined about 23 percent over the past three months, compared to 13 percent drop on the S&P 500 over the same period.