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Xerox Corporation (XRX - Analyst Report) reported net income from continuing operations of $288 million or 22 cents per share in the third quarter of 2013 compared with $280 million or 21 cents a share in the year-ago quarter.

Excluding non-recurring items, adjusted earnings in the reported quarter were $340 million or 26 cents per share versus $331 million or 25 cents per share in the year-earlier quarter. The adjusted earnings beat the Zacks Consensus Estimate by a penny.

Revenues in the quarter were flat year over year at $5,262 million, missing the Zacks Consensus Estimate of $5,333 million. Operating margin was up 0.5% to 9.4% and gross margin remained flat year on year at 31.5%.

Segment Performance

Revenues from the Services segment, which include Document Outsourcing (DO), Business Process Outsourcing (BPO) and Information Technology Outsourcing (ITO), rose 3% to $2.9 billion in the reported quarter, driven by higher revenues from all three subdivisions.

Segment margin increased 0.5% year over year in the reported quarter. Total Services sales pipeline grew 5% year over year. Total contract value of deal signings aggregated $2.9 billion with BPO, DO and ITO accounting for $1.8 billion, $860 million and $260 million, respectively.

Revenues in the Document Technology segment dipped 4% year over year to $2.2 billion, including a 1% positive impact from currency. The decline was attributable to a fall in equipment sales and annuity revenues.

Segment margin increased 1.3% year over year in the reported quarter.

Revenues in the Other segment went down 6% to $159.0 million (including 2% positive impact from currency). Lower revenues in its wide format business and lower paper sales within developing markets resulted in the decline.

Financial Position

Xerox had cash and cash equivalents of $948.0 million at quarter-end, compared with $882.0 million in the year-ago period. Total debt at quarter-end stood at $7.5 billion versus $8.5 billion as of Dec 31, 2012.

Net cash used in operating activities in the reported quarter were $961 million versus $594 million in the year-ago period.

Outlook

For fourth quarter 2013, Xerox expects GAAP earnings between 24 cents and 26 cents per share, while adjusted earnings are expected to be within 28 cents to 30 cents.

For full year 2013, Xerox expects GAAP earnings guidance in the range of 93 cents to 95 cents and expects adjusted earnings between $1.08 and $1.10. The company expects operating cash flow to range from $2.1 billion to $2.4 billion in 2013.

Xerox forecasts continued demand from small and midsize businesses in the United States and positive trends in the high end of its business going forward.  

Xerox currently has a Zacks Rank #3 (Hold). Other stocks that look promising and are worth a look in the industry include Nitto Denko Corp. (NDEKY), which carries a  Zacks Rank #1 (Strong Buy), and Ricoh Company, Ltd. (RICOY) and QUALCOMM Inc. (QCOM - Analyst Report), both carrying a Zacks Rank #2 (Buy).

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