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Xerox 3Q net falls 11%
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October 18, 1999: 6:30 p.m. ET
Copier maker meets revised forecast, says problems to continue into 2000
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NEW YORK (CNNfn) - Xerox Corp. posted an 11 percent drop in third-quarter income Monday, and said price pressures and other problems would continue into the first half of 2000.
The per-share earnings results matched Wall Street's expectations, which were revised downward on Oct. 8 after the company warned its results would fall below forecasts. Analysts say the photocopier maker is struggling to compete amid the increasingly high-tech office environment.
Income from continuing operations totaled $339 million, or 47 cents per diluted share, down from $381 million, or 53 cents per share, in the year-earlier period. Revenue totaled $4.63 billion, compared with $4.61 billion in the third quarter of 1998.
Stamford, Conn.-based Xerox cited price pressures, an unfavorable product mix and a reorganization of its sales structure. Problems abroad at its Fuji Xerox unit and in Brazil also hurt earnings.
"These results are totally unacceptable," CEO Rick Thoman said.
The business machines maker said it continues to struggle with competitive pricing pressures and a reorganization of its sales and billing systems. The effects, the company said, could extend into the fourth quarter and beyond.
Thoman said the company's problems have had a personal effect, costing him two-thirds of his net worth. Thoman draws about 75 percent of his compensation from stock and stock options.
"We're all suffering from this and we're going to fix it," Thoman said.
Thoman said several factors contributed to the earnings decline, including a customer shift to lower-priced products. Customers tend to buy high-end products in the last few days of each quarter, Thoman said. But that did not happen in the third quarter.
Thoman said the company believes sales of high-end products may have been affected by customer concerns about the Y2K problem, the risk that computer chips will malfunction when the calendar rolls over to 2000.
Xerox said weakness in a joint venture with Fuji and the economic decline in Brazil also hurt its results.
Earlier this year, Xerox announced a plan to streamline its U.S. customer administration by consolidating 36 billing centers across the country into three centralized centers.
The company also said it would reorganize its 14,000-person sales force to boost sales of "bundled" services to corporate customers integrating fax machines, printers, copiers and personal computer software. Xerox said it planned to move its sales force away from geographical coverage toward coverage of specific industries.
Both moves have caused disruption and slowed productivity, Thoman said. The sales force has spent up to 40 percent of its time dealing with answering billing inquiries and getting orders straight, he said.
But he added: "We still think we have a winning strategy."
Thoman said Xerox expects a 20 percent decline in fourth-quarter earnings per share.
For the first nine months of the year, operating income totaled $13.8 billion, or $1.55 per diluted share, up from $13.7 billion, or $1.49 per share, in the year-earlier period. The 1998 results do not include a $1.1 billion restructuring charge taken in the second quarter.
Xerox stock closed down 1-11/16 at 27-7/16 Friday.
-- from staff and wire reports
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