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Xerox Reports Q2 Earnings
Jul 25, 2005
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Business appliance maker Xerox Corporation announced second-quarter earnings per share of U.S. $0.40, including a $0.33 per share gain from a recent IRS tax settlement, which was partially offset by restructuring charges of $0.13 per share.

Equipment sales in the second quarter increased 4 percent year over year, and total revenue of $3.9 billion increased 2 percent. Both equipment sales and total revenue included a currency benefit of 2 percentage points. The overall post-sale trend improved as the revenue stream from new digital systems and services offset declines from the company's older light-lens technology.

Gross margin of 39 percent was lower than expected due to a change in the company's traditional product mix, which impacted net income in the quarter. The shift in product mix is primarily due to increased sales activity for desktop office products as well as light production and color systems.

Revenue from color products grew 17 percent in the second quarter. Color is a key driver of Xerox's growth strategy as the increasing volume of pages printed on the company's color systems flows through to post-sale revenue. Only 3 percent of the total pages produced in businesses today are printed on color devices. Xerox expects new color services and technologies to drive that number to 10 percent of pages by 2008, fueling a $22 billion market opportunity.

In Xerox's office business, which provides technology and services for workgroups of any size, equipment sales were up 7 percent and total revenue grew 2 percent. Activity was exceptionally strong in the second quarter with office color multifunction systems up 69 percent and office color printing activity up 155 percent. Office monochrome activity was up 26 percent driven by increased demand for Xerox WorkCentre™ desktop multifunction systems.

The company reported second-quarter selling, administrative, and general expenses of 26.7 percent of revenue, a modest improvement from the second quarter of last year. In the second quarter, Xerox generated operating cash flow of $290 million after contributing $230 million to its primary U.S. pension plan. The company closed the quarter with a cash and short-term investments balance of $2.1 billion. Debt was down $2.1 billion year over year and down $1.5 billion from the first quarter of this year.

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