April 18 (Bloomberg) -- Xerox Corp., the world's largest maker of high-speed color printers, had a $244 million first- quarter loss after settling a securities lawsuit from 2000. Results excluding the legal costs matched analysts' estimates.

The net loss of 27 cents a share compared with net income of $233 million, or 24 cents, a year earlier, Norwalk, Connecticut-based Xerox said in a statement. Without the 54 cents a share in legal costs, earnings would have been 27 cents.

Revenue rose 13 percent to $4.34 billion, more than analysts expected, as Chief Executive Officer Anne Mulcahy added more products that print in color. Gross profit margins fell 1.3 percent because of price declines and a higher proportion of sales from low-margin products including paper. Xerox said full- year profit will be lower than it forecast in January.

``They missed on operating margin, but they beat on revenue,'' Shannon Cross, an analyst with Cross Research in Livingston, New Jersey, said in an interview today. She has a ``buy'' rating on Xerox. ``Falling prices and lower margin definitely are a concern but, historically, if the company misses on operating margin one quarter, they tend to make it up the next. They are good at cost containment.''

Xerox gained 7 cents to $14.57 at 4:02 p.m. in New York Stock Exchange composite trading. The stock has declined 20 percent in the past 12 months.

Restructuring Costs

The company anticipates restructuring costs in the second quarter of 5 cents a share to reduce expenses on warehousing, manufacturing and transportation. As a result, full-year profit is now projected to be between $1.26 and $1.30 a share, lower than the $1.31 to $1.35 a share the company forecast in January, Mulcahy said on a conference call with analysts today.

Xerox faces a ``challenging'' market in the U.S. where some companies are now delaying decisions on larger equipment purchases, Mulcahy said. The company is seeing ``steady improvement'' in markets including Russia, East Europe and India, she said.

``We know we can improve overall operational performance, balancing investments in the business with cost, to bring margin back in line with our model,'' Mulcahy said. ``We are operating in a tougher economy and we are competing more aggressively to win share.''

Sales of color technology gained 13 percent in the quarter after Xerox last year introduced 18 color devices. Marketing costs increased general expenses by 1 percentage point to 26 percent of sales, the company said. Total gross margin fell to 39.3 percent, from 40.6 percent a year earlier. A lower tax rate helped make up for the reduced margin.

Color Sales

Color products now account for 40 percent of revenue, the company said. Equipment sales rose 18 percent to $1.1 billion in the quarter. About 48 percent of equipment revenue was from color products.

Revenue from toner, paper and supplies rose 11 percent to $3.24 billion. About 37 percent of those sales were for color products.

Such follow-up sales are ``the strength of the whole business model,'' Larry Zimmerman, chief financial officer of Xerox, said in an interview. ``It does extremely well in any kind of economy. It's a great protection in a down economy.''

Legal Costs

Xerox disclosed on March 27 that it would take a charge of $491 million to cover the costs of a 2000 lawsuit and other pending securities-related cases. The lawsuit claimed that Xerox misled investors about its financial health.

Earnings excluding the one-time costs matched the 27-cent average of eight analyst estimates compiled by Bloomberg. Sales exceeded the $4.22 billion analysts had predicted.

A Goldman Sachs Group Inc. report earlier this week predicted generally disappointing first-quarter results among U.S. companies and warned of a ``swath of lowered profit guidance.''

Xerox said it expects second-quarter earnings of 23 cents to 25 cents a share, including the restructuring charge of 5 cents. Analysts, on average, project earnings of 29 cents a share.

Mulcahy is relying on supplies and services for a greater percentage of sales as technology spending may slow amid concerns of a U.S. recession. The company in May bought Global Imaging Systems, an office-equipment retailer, for $1.67 billion to reach small- and mid-sized businesses.

To contact the reporter on this story: Edmond Lococo in Boston at elococo@bloomberg.net.

Last Updated: April 18, 2008 16:12 EDT