Xerox� (NYSE: XRX) put up $6.4 billion in 2009 to acquire Affiliated Computer Services and the company’s shares promptly plunged below $5 a share. Now, as it reports third-quarter earnings, Xerox has now proved that it knew what it was doing, and the news gets better all the time.
Xerox reported third-quarter earnings of 22 cents a share, excluding items, on revenue of $5.43 billion. In the year-earlier quarter, it earned 14 cents a share. �For the recent quarter, analysts had been expecting earnings of 21 cents a share on revenue of $5.44 billion. Revenues jumped 48% year-over-year, largely due to the acquisition, and net income soared 98%. The ACS acquisition contributed 83% of the company’s growth in its service, outsourcing and rental revenue. Xerox’s service operations now provide more than half the company’s revenue, compared with about one-quarter before the acquisition.
The Xerox share price has gained more than 40% in the past year, compared with a gain of around 30% for Oracle (NASDAQ: ORCL), about 15% for IBM (NYSE: IBM) and a loss of about 11% for Hewlett-Packard� (NYSE: HPQ), its competitors in the business services market.
Xerox did raise its estimate for full-year restructuring costs related to the ACS acquisition from $280 million to $400 million. Gross margins also declined from 39.8% in the same period a year ago to 33.6% this year. On a pro forma basis, though, the decline was just -0.3%.
Xerox also said it plans to cut 2,500 jobs in the next year as part of its restructuring.
The company reiterated its guidance to deliver $2.6 billion in operating cash and $2 billion in free cash flow for the full year. Fourth-quarter adjusted EPS is guided at 28 cents to 29 cents a share, excluding the restructuring costs. Full-year non-GAAP EPS has been raised from 88-92 cents a share to 92-93 cents a share. The new guidance is in line with analysts’ previous expectations.
The median price target for Xerox shares is $13, and the stock is trading this morning at around $11.32, up 2% from yesterday’s close, and within half-a-dollar of its 52-week high.
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