Xerox Surprises With Q4 Profit

NEW YORK – Office equipment maker Xerox Corp. Monday reported a surprise profit, before unusual items, for the 2001 fourth quarter and said it was confident of a profit for the full year 2002 due to a reorganization and cost-cutting.

The company said profits in North America increased in the quarter and its European business also posted a profit.

Investors smiled on the report, sending Xerox shares up 55 cents, or about 5.6 percent, to $10.45 in morning trade on the New York Stock Exchange.

"Anyway you look at it, it was a better quarter than expected," said Lehman Brothers analyst Carol Sabbagha, who said Xerox's gross margin, at 38.3 percent in the fourth quarter, was up 3.2 percentage points from a year earlier and beat analysts' forecasts.

Excluding restructuring charges and the effect of currency translation, Xerox posted a fourth-quarter profit of 15 cents a share. Analysts' consensus forecast was a loss of 1 cent a share, with estimates ranging from a loss of 6 cents to a profit of 6 cents, according to Thomson Financial/First Call .

Fourth-quarter revenues were $4.3 billion, down 13 percent from $4.9 billion a year earlier.

Stamford, Connecticut-based Xerox reported a net loss of $4 million, or 1 cent a share, compared with a net loss of $20 million, or 4 cents a share, a year earlier.

Xerox Chief Executive Anne Mulcahy, in a statement, said decisions to exit certain businesses and cut costs "resulted in the strong performance delivered in the fourth quarter, including increased gross margins ... reduction of inventory to historically low levels, and improved receivables."

She added, "The outcome is a return to operational profitability, representative of the new Xerox that is emerging from our successful turnaround."

TURNAROUND TAKING HOLD

Facing a mound of debt and steady losses, Xerox, known best for its photocopy machines and printers, last year moves to cut annual costs by $1.1 billion, selling or transferring certain manufacturing operations and eliminating 13,600 jobs.

For the full year 2001, Xerox reported a net loss of $293 million, or 43 cents a share, on revenues of $16.5 billion. Revenues were $18.7 billion in 2000.

Xerox has struggled in recent years amid slumping sales, increased competition and allegations of accounting irregularities. But under the guidance of new CEO Mulcahy, the company and its stock price have rebounded amid growing sentiment that the turnaround is taking hold.

Mulcahy noted that for the fourth quarter, the weak economy hurt revenues, especially in high-end and color products. But the decision to walk away from businesses that weaken the company's bottom line and to pursue profitable growth opportunities is beginning to pay off.

Since Nov. 19, when Mulcahy outlined her forecast for a 2002 profit, Xerox shares have risen some 35 percent and have outperformed the S&P 500 index by about 37 percent.

The company said its current cash position has increased to $4.5 billion, and net debt for the fourth quarter was down $4.1 billion from Dec. 31, 2000, a 25 percent reduction.

"Xerox's strengthened financial position is an important factor in our active negotiations with the bank group to refinance a portion of the revolver and to extend its maturity," Mulcahy said in reference to the company's $7 billion revolving line of credit.

Looking ahead, Xerox said it is comfortable with analysts' first-quarter earnings forecasts and has confidence in its plan to deliver a profit for the full year 2002. Revenues are expected to decline in the first quarter due to seasonal factors, it said.

Analysts have predicted first-quarter results ranging from a loss of 3 cents a share to break-even. For 2002, they see Xerox turning a profit of about 28 cents a share.