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Xerox Corporation (XRX - Analyst Report) reported net income from continuing operations of $294 million or 23 cents per share in the second quarter of 2013 compared with $307 million or 22 cents in the year-ago quarter.

Excluding non-recurring items, adjusted earnings in the reported quarter were $345 million or 27 cents per share versus $358 million or 26 cents in the year-earlier quarter. The adjusted earnings beat the Zacks Consensus Estimate of 24 cents.

Revenues in the quarter increased 1% year over year to $5,402 million, missing the Zacks Consensus Estimate of $5,494 million. Operating margin was down 0.5% to 9.4% and gross margin slipped 1.2% to 31.4% in the reported quarter.

Segment Performance

Revenues from the Services segment, which include Document Outsourcing (DO), Business Process Outsourcing (BPO) and Information Technology Outsourcing (ITO), rose 5% to $2.9 billion in the reported quarter, driven by higher revenues from all three subdivisions.

Segment margin dipped 0.4% year over year in the reported quarter. Total Services sales pipeline grew 10% year over year. Total contract value of deal signings aggregated $3.7 billion with BPO, DO and ITO accounting for $2.6 billion, $800 million and $300 million, respectively.

Revenues in the Document Technology segment dipped 5% year over year to $2.2 billion, with no negative impact from currency. The decline was attributable to a fall in equipment sales.

Segment margin decreased 0.5% year over year in the reported quarter.

Revenues in the Other segment went down 5% to $183.0 million driven by lower revenues in its wide format business and lower paper sales within developing markets.

In order to boost its profitability, Xerox completed the sale of its North American paper business to Domtar Corporation and entered into an agreement to sell its European paper business to a paper distributor in Antalis.

Financial Position

Xerox had cash and cash equivalents of $929.0 million at quarter-end, compared with $814.0 million in the year-ago period. Total debt at quarter-end stood at $8.1 billion versus $8.5 billion as of Dec 31, 2012.

Net cash used in operating activities in the reported quarter were $533 million.

Outlook

The clients are increasingly expanding their partnerships with Xerox to improve the effectiveness of their operations. The increase in contract value of services signings and the growing pipeline are strong indicators for the company to fuel its business and this bodes well for the company in the long term.  

For third quarter 2013, Xerox expects GAAP earnings between 20 cents to 22 cents per share, while adjusted earnings are expected to be within 24 to 26 cents. For full year 2013, Xerox reiterated GAAP earnings guidance in the range of 94 cents to $1.00 and expects adjusted earnings between $1.09 and $1.15. The company also reiterated its operating cash flow guidance of $2.1 billion to $2.4 billion in 2013.

Xerox currently has a Zacks Rank #3 (Hold). Other stocks that look promising and are worth a look in the industry include Canon Inc (CAJ - Snapshot Report), which carries a  Zacks Rank #1 (Strong Buy), and Ricoh Company, Ltd. (RICOY) and Cypress Semiconductor Corp. (CY - Analyst Report), each carrying a Zacks Rank #2 (Buy).

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