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Xerox Corp. (XRX - Analyst Report) reported GAAP earnings of $335 million or 26 cents per share in the fourth quarter of 2012 compared with  $375 million or 26 cents in the year-ago quarter, driven by decrease in sales in the Technology segment.. Adjusted EPS in the quarter stood at 30 cents, ahead of the Zacks Consensus estimate by 2 cents. 

For fiscal 2012, GAAP earnings stood at 88 cents, down 2% year over year.  Adjusted earnings stood at $1.03 per share for the full year, in line with the Zacks Consensus Estimate

Revenues in the quarter declined 1% (flat in constant currency) year over year to $5.9 billion, missing the Zacks Consensus Estimate of $5.8 billion.  For fiscal 2012, revenue stood at $22.4 billion down 1% year over year.

Operating margin was up 0.3 basis points to 10.3% in the fourth quarter, driven by savings from restructuring and lower selling and administrative expenses. Gross margin dipped 0.7% basis points  to 31.5% in the reported quarter. This decrease was driven primarily by the higher overall mix of Services revenue.

Segment Performance

Revenues from the Services segment, which include Document Outsourcing (DO), Business Process Outsourcing (BPO) and Information Technology Outsourcing (ITO), rose 7% to $3.0 billion in the fourth quarter (with no impact from currency), driven by higher revenues from all three subdivisions.

Growth in government healthcare, transportation businesses and customer care helped BPO revenues improve 8% in the reported quarter. Revenues from the DO segment rose 2% (with no impact from currency) due to new partner print services offerings. Revenues from ITO segment went up 15% (Including 1% negative impact from currency) on signings growth in the fourth quarter.

Revenues in the Technology segment dipped 8% to $2.5 billion, with no negative impact from currency. The decline was attributable to a 14% fall in equipment sales and a 4% decline in annuity revenues. The disappointing performance of this segment stems from the fact that Xerox’s customers are migrating to its partner print services offering.

Revenues in the Other segment went down 4% to $374.0 million, including a negative impact of 1% point from currency. The decline in revenues was attributable to lower patent sales and licensing revenue

Financial Position

Xerox had cash and cash equivalents of $1246.0 million as of Dec 30, 2012, compared with $902.0 million as of Dec 31, 2011. Total debt stood at $8.5 billion as of Dec 30, 2012, compared with $8.6 billion as of Dec 31, 2011.

The company generated $1.8 billion in cash from operations during the fourth quarter and expects to generate operating cash flow of $2.1 billion to $2.4 billion in fiscal 2013

Guidance

In fiscal 2012, Xerox focused on scaling its services business to align itself with growth opportunities in the $600 billion market. For first quarter 2013, the company expects adjusted earnings between 23 cents and 25 cents a share and expects adjusted EPS of $1.09 to $1.15 in fiscal 2013.

However, the company needs to be wary of its competitors, which include formidable names such as Lexmark International Inc (LXK - Analyst Report) and Canon Inc (CAJ - Snapshot Report).

Xerox Corp currently has a Zacks Rank #4 (Sell). One of its competitors Pitney Bowes Inc (PBI - Analyst Report) carries a Zacks Rank #4 (Sell).

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