Xerox Prospects Improve With Rise in Document Spending

Xerox Corp., the largest maker of high-speed color printers, forecast second-quarter profit that beat analysts’ estimates as customers renew spending on printing and office services. The stock rose as much as 8.6 percent.

Per-share profit this quarter, excluding some costs, will be at least 20 cents, Xerox said in a statement today. That compares with the average analyst estimate of 18 cents in a Bloomberg survey. First-quarter profit and sales also exceeded analysts’ projections.

Customers are spending more on services to help them manage documents, after curbing budgets amid the recession. The rebound, plus a sales boost from the purchase of Affiliated Computer Services Inc., helped Xerox increase sales 33 percent last quarter. Xerox also said today that full-year profit will be at the high end of its forecast.

The earnings report was the first since Chief Executive Officer Ursula Burns completed the $6 billion acquisition of ACS, the largest in Xerox’s history. She aims to transform the printer and copier company into a bigger provider of office- support services. Investors need assurance that cost savings --a big selling point for the deal -- are under way, said Deutsche Bank’s Chris Whitmore.

“People want to hear tangible evidence of decent integration coming out of the chute,” said the San Francisco- based analyst, who rates the shares “hold” and doesn’t own them. “They need to give people confidence.”

Cost Savings

Xerox said it’s on track to save at least $100 million this year, as projected. The company announced 2,500 job cuts last quarter, leading to an additional $140 million in savings.

Xerox, based in Norwalk, Connecticut, rose as high as $11.35 in early trading after closing at $10.45 yesterday on the New York Stock Exchange. The shares had climbed 24 percent this year before today.

The first-quarter loss was $42 million, or 4 cents a share, compared with a profit of $42 million, or 5 cents, a year earlier. Excluding restructuring and other costs, profit was 18 cents a share, topping the average analyst estimate of 13 cents. Sales climbed to $4.72 billion from $3.55 billion a year earlier.

The company had forecast full-year profit of 75 cents to 85 cents. Analysts on average estimated 79 cents, according to a Bloomberg survey.

Burns, 51, took over as CEO in July, when Anne Mulcahy stepped down after eight years at the helm. Burns announced the ACS deal less than three months later, in an effort to build Xerox’s services business amid declining sales of printing equipment. ACS handles accounting, benefits and other administrative tasks for corporations.

After the stock dropped 15 percent the day the deal was announced, Burns spent the next five months convincing investors that it could boost services sales and take out costs. When the deal closed Feb. 8, shares had climbed most of the way back, up 10 percent compared with a decline in the Standard & Poor’s 500 in the same period.

To contact the reporter on this story: Katie Hoffmann in New York at khoffmann4@bloomberg.net

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