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Xerox Corporation (XRX - Analyst Report) reported net income (from continuing operations) of $310 million or 25 cents per share in the fourth quarter of 2013 compared with $334 million or 26 cents a share in the year-ago quarter. Excluding non-recurring items, adjusted earnings for the reported quarter were $361 million or 29 cents per share versus $385 million or 30 cents per share in the year-earlier quarter. The adjusted earnings for the reported quarter were in line with the Zacks Consensus Estimate.

The year-over decrease in earnings was primarily attributable to decline in revenues, which decreased 3% year over year to $5,569 million. Quarterly revenues also missed the Zacks Consensus Estimate of $5,645 million.

For full year 2013, net income (from continuing operations) was $1,185 million or 93 cents per share compared with $1,184 million or 87 cents a share in 2012. Excluding non-recurring items, adjusted earnings for 2013 were $1,390 million or $1.09 per share versus $1,387 million or $1.02 per share in 2012. Revenues for full year 2013 dipped to $21,435 million from $21,737 million in the previous year.

Segment Performance

Revenues from the Services segment, which include Document Outsourcing (DO), Business Process Outsourcing (BPO) and Information Technology Outsourcing (ITO), remained relatively flat at $3,039 million in the reported quarter (55% of total revenue). While revenues from DO and ITO increased year over year, BPO revenues declined due to lower volumes in customer care business.

Segment margin decreased 1.6% year over year to 9.6% largely due to the impact of price declines, higher healthcare platform expenses and the run-off of the student loan business. Total Services sales pipeline grew 9% year over year. Total contract value of deal signings aggregated $3.0 billion with BPO, DO and ITO accounting for $1.8 billion, $870 million and $320 million, respectively.

Revenues in the Document Technology segment dipped 6% year over year to $2,351 million (42% of total revenue) due to a fall in equipment sales and annuity revenues.

Segment margin decreased 0.6% year over year in the reported quarter to 11.7% owing to price declines and unfavorable changes in revenue mix.

Revenues in the Other segment went down 16% to $179 million (3% of total revenue). 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 $1,764 million at year-end 2013, compared with $1,246 million in the year-ago period. Long-term debt at year-end stood at $6,904 million versus $7,447 million as of Dec 31, 2012.

Net cash provided by operating activities in the reported quarter were $968 million versus $1,773 million in the year-ago period. Xerox generated $2,375 million of cash flow from operations in 2013 compared with $2,580 million in 2012. The company repurchased $524 million worth of shares in the reported quarter and approximately $700 million during the year. Xerox increased the quarterly cash dividend by 8.7% to 6.25 cents per share, beginning with the dividend payable on Apr 30, 2014.

Outlook

For first quarter 2014, Xerox expects GAAP earnings between 19 cents and 21 cents per share, while adjusted earnings are expected to be within 23 cents to 25 cents.

For full year 2014, Xerox reiterated GAAP earnings guidance in the range of 93 cents to 99 cents and adjusted earnings between $1.10 and $1.16. The company expects operating cash flow to range from $1.8 billion to $2.0 billion in 2014.

Moving Forward

Investor sentiments were down with lackluster fourth quarter and full year 2013 results as share prices fell in pre-market trading post the earnings release. Moving forward, Xerox expects to realign its business model to better adapt to the evolving market trends by expanding indirect distribution channel and streamlining its supply chain and product portfolio.

Xerox also intends to focus more on vertical markets like healthcare. In addition, it is integrating its market-leading Managed Print Services (MPS) with business process and IT outsourcing capabilities and continuing its thrust for leadership in Document Technology.

Xerox currently has a Zacks Rank #3 (Hold). Other stocks that look promising and are worth considering in the technology industry include Himax Technologies, Inc. (HIMX - Snapshot Report), SemiLEDs Corp. and Vishay Intertechnology Inc. (VSH - Snapshot Report), each carrying a Zacks Rank #2 (Buy).

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