Xerox loss shrinks to a penny per share

But, with sales weak, firm has far to go to duplicate glory days

January 29, 2002|By BLOOMBERG NEWS

STAMFORD, Conn. - Xerox Corp., whose sales have dropped seven quarters in a row, said yesterday that its fourth-quarter loss narrowed after the largest maker of copiers cut jobs, sold assets and exited businesses. Its shares rose 14 percent.

The loss narrowed to $4 million, or 1 cent a share, from $20 million, or 4 cents, a year earlier. Sales fell 13 percent to $4.26 billion, the company said.

Chief Executive Officer Anne Mulcahy reduced total expenses by 13 percent in the quarter, capping a year where she eliminated 13,600 jobs and cut annual costs by $1.1 billion. Xerox this year faces dwindling market share, soaring borrowing costs, inquiries into its accounting methods and $2 billion in public debt due.

"This is mostly a situation of cost controls taking effect," said David J. Williams, manager of the Excelsior Value and Restructuring Fund. "I'm not sure if it implies long-term growth."

In the fourth quarter, Xerox had a gain of 6 cents a share and costs of 19 cents for restructuring and 3 cents related to Argentina's currency devaluation.

Excluding those items, Xerox said, it would have had profit of 15 cents a share. On that basis, it beat the average analyst estimate for a loss of 1 cent a share, based on a poll by Thomson Financial/First Call.

"The fact that they blew out the [consensus] numbers was a surprise," Williams said.

Mulcahy began a turnaround plan after becoming president in May 2000, when President and CEO Richard Thoman was ousted. She became CEO about a year later and had said she would return Xerox to profitability by the fourth quarter of 2001.

"Anyway you look at it these numbers are good," said Caroline Sabbagha, an analyst with Lehman Brothers Inc. who rates Xerox stock "market perform" and doesn't own shares.

"This was a great quarter, but it highlights one of the main Xerox concerns. Will Xerox be able to grow equipment sales?"

Sales have fallen as the one-time Wall Street darling has focused on cutting costs to boost profit rather than increasing its market share. Mulcahy attributed the quarter's sales drop to operations in developing countries.

Xerox has said it is depending on a $1 billion investment in DocuColor iGen3, a high-speed, color digital press, to boost sales and profit. Xerox plans to begin selling iGen3 by the second half of the year, and at about $500,000 each, Mulcahy says the machines will bring in $15 billion in the next decade.

The U.S. Securities and Exchange Commission recently told Xerox that its methodology for accounting for sales-type leases does not follow Financial Accounting Standards Board requirements. Xerox denies wrongdoing and says results using either methodology are "immaterial."

To address the SEC investigation that began in June 2000, Mulcahy in the past year has restated earnings for 1998 through 2000; replaced Xerox's auditor, KPMG LLP, with PricewaterhouseCoopers LLP; and created an office to monitor company ethics and accounting policies.

The company has hired an outside company to help find a replacement for Chief Financial Officer Barry Romeril, 58, who retired at the end of the year.

Shares of Stamford-based Xerox rose $1.34 to $11.24.

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