Office equipment maker Xerox Corp on Monday posted lower-than-expected quarterly earnings as a shift to sales of lower-priced models trimmed profit margins. Its stock fell nearly 7 percent. Xerox, best known for its copiers and printers, also warned that third-quarter profit may fall short of analysts expectations.
The company, which is struggling to boost equipment sales amid tough competition from rivals such as Canon Inc and Hewlett-Packard Co, has been introducing lower-margin products in hopes of capturing customers for its more-lucrative supplies and services business.
Xerox reported earnings of 20 cents a share, excluding a large tax gain and other one-time items. Wall Street analysts on average had expected 23 cents, according to Reuters Estimates.
Revenue rose 2 percent to $3.92 billion from $3.85 billion.
Analysts were encouraged by a 4 percent rise in equipment sales, but said Xerox needs to deal with underlying costs that also shrink profit margins. "They are selling product, but the product they are selling are lower-end," said Cross Research analyst Shannon Cross.
Cross added, however, that revenue growth was better than expected, indicating the company's strategy of using low-cost products to sell supplies and services is working.
Chief Executive Anne Mulcahy said Xerox enacted new cost-cutting moves, including the voluntary reduction of more than 2,000 employees in its technical service segments, which she believes will help boost margins and profit for the full year. The company took a restructuring charge of 13 cents a share in the quarter.
"We fully expect that these actions plus the benefit of new products will significantly improve earnings in the second half of this year especially in the fourth quarter," she said on a conference call.
Mulcahy has previously said the company's 2005 results would be heavily weighted to the latter half of the year, following the introduction of a line of new products and as weak sales of supplies and services to customers with older models become a smaller portion of all revenue.
Net income available to common shareholders doubled to $408 million from $187 million a year earlier. Excluding payments of preferred stock dividends, earnings rose to $423 million, or 40 cents a share, from $208 million, or 21 cents per share.