Xerox Corp. cut its fourth-quarter profit target as it restructures in the face of economic weakness, but raised its dividend, which boosted its shares by nearly 3 percent.
The company, historically known for printers and copiers, said on Tuesday, it was taking a restructuring charge at the high end of a previously announced target range in the services business, which handles anything from toll systems to the government Medicare program.
Chief executive officer Ursula Burns had warned in October that the company would likely lower its fourth-quarter earnings forecast once the restructuring details were finalized.
Still, the stock rose almost 3 per cent after Xerox said it increased its share buyback program by $1-billion (U.S.) and would raise its dividend by 35 per cent to 5.75 cents per quarter, beginning with the payout in April.
Xerox expects fourth-quarter adjusted earnings of 28 cents to 30 cents per share, including the charge, down from its Oct. 23 forecast of 33 cents to 35 cents.
Analysts had, on average, estimated 32 cents a share, according to Thomson Reuters I/B/E/S.
Xerox said 2013 GAAP earnings per share would be in a range of 94 cents to $1. On an adjusted basis, it forecast 2013 earnings per share of $1.09 to $1.15.
The company expects 2013 revenue to be flat to up 2 per cent, roughly in line with analysts’ expectations for an increase of almost 1 per cent, according to Thomson Reuters I/B/E/S.
Cross Research analyst Shannon Cross said Xerox’s outlook for 2013 was in line with Wall Street expectations, even though it missed her estimate. She described its 2013 target for $2.1-billion to $2.4-billion in operating cash flow as “solid.”
Xerox said its fourth-quarter restructuring charge would be $100-million, at the top end of its previous range of $50-million to $100-million.
Chief financial officer Luca Maestri said a $55-million charge would be taken for the services business and $45-million for the document technology division.
That will result in savings of $80-million next year for services and $50-million for the technology unit.
More than one-half of Xerox’s revenue comes from services, after it bought Affiliated Computer Services Inc. for $5.5-billion in 2009, but investment in those operations has pressured margins.
Lynn Blodgett, head of the services unit, said the company had methodically gone through the services business and found “redundancies and too many layers.”
“We don’t have a revenue issue, we have a cost issue,” Ms. Blodgett said, adding that 70 per cent of labor was in high-cost areas such as the United States or Europe.
Therefore the company will try to make more use of offshoring and at-home work, although Ms. Burns said because Xerox had a lot of state contracts, it could not always choose where its work force could be located.
“State government contracts will force you to be close by,” she said.
Xerox said in October the restructuring was due to a tougher economy as both its government and corporate customers tightened budgets.
Both Ms. Burns and Mr. Maestri said they were planning on macroeconomic conditions to remain challenging, especially in Europe.
Mr. Maestri stressed that the company would do what it takes to protect its rating and profitability.
In 2013, the company would allocate $300-million to its dividend, some $500-million for acquisitions in services and $400-million for share buybacks, as well as another $400-million to repay debt.
Mr. Maestri said Xerox’s debt will be around $8.6-billion by year-end, with $1-billion debt due in 2013.