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Xerox 4Q profit to plunge
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December 10, 1999: 7:19 p.m. ET
Printing company warns it will miss earnings estimates by 40 percent
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NEW YORK (CNNfn) - Xerox Corp. warned Friday it will miss fourth-quarter earnings expectations by roughly 40 percent because of Y2K-related pressures and weak profits from its Brazil operations.
The Stamford, Conn.-based printing and publishing company made its announcement after the market’s closed Friday. Xerox (XRX) shares plummeted in after-hours trading, falling 4-11/16, or nearly 20 percent, from its closing price of 24-11/16.
However, company officials said that its financial picture could still improve because December tends to be the company’s highest revenue month. But, based on October and November results, company officials project fourth-quarter revenues will show a decline within the mid-single digit range.
The primary factors for that decline include continued weak sales in Xerox’s high-end printing and publishing equipment, higher-than-expected costs related to its ongoing sales force reorganization and a significant profit shortfall from the company’s Brazilian operations due to a major currency devaluation there.
Analysts surveyed by First Call had been expecting earnings of 66 cents a share in the quarter. A 40 percent drop would bring that to about 40 cents a share. The company had net income of $615 million, or 84 cents per current diluted share, in the fourth quarter a year ago.
Rick Thoman, Xerox' president and chief executive officer, told analysts in a conference call he would hold himself personally responsible for the turnaround.
"As CEO, I’m going to take the lead to getting things back on track,” he said.
Officials mum on 2000 projections
Thoman said he was not willing to give projections on either revenue or earnings for 2000. He said the company is looking for revenue growth next year -- particularly during the second half of the year -- and promised a series of price increases that will be announced on Monday.
One factor that should significantly help sales next year is the elimination of Y2K concerns, which have stymied printing and publishing equipment sales, Thoman said.
Company officials also acknowledged pricing pressures from competitors like Cannon may be having an adverse impact on sales, but to a lesser extent. Still, the lower sales might lead the company to take an inventory charge during the fourth quarter.
With Y2K issues out of the way, the company should see a "significant improvement in cash flow” next year, Thoman said.
However, the primary reason for the reduction in quarterly revenue is the devaluation of the Brazilian currency, and company officials are less confident about a turnaround there next year.
"I guess you can say we’re a little bit scarred about that one turning around,” said Barry Romeril, the company’s chief financial officer.
The other unknown factor is how quickly the company can realign its sales force to an industry solutions focus.
Thoman acknowledged the cost related with that realignment will continue to be an issue, but promised that sales force productivity, "will get better next year. Company officials also promised to look at other cost-cutting strategies.
Xerox also had to warn on profits in the third quarter for similar reasons. Ultimately, the company’s net income dropped 11 percent to $339 million, or 47 cents a diluted share, on flat revenue of $4.6 billion.
First Call had been projecting income of $2.29 a share for Xerox next year, compared with income of just less than $2 a share it is now looking at this year. 
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Xerox Corp.
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