Stock of the Day
|
Xerox (XRX)
Xerox Forced to Cut Quarterly Forecast
Xerox announced today that it will be reducing its first quarter earnings forecast by nearly 80%. The copier and printer giant officially adjusted its expected earnings per share from the range of 16-18 cents to 3-5 cents for the first quarter. The firm also acknowledged an 18% decrease in revenue from January to February in 2009. On a positive note, the Xerox Corporation did state that it is focused on eliminating its total debt and is still on pace to accumulate $250 million in savings this year. It seems Xerox, like most companies, is being hit hard by the floundering economy. Even with that in mind, how was Xerox's forecast off by so much? What recent developments have forced Xerox to make such a drastic adjustment to its quarterly forecast?
|
| Daily Chart |
If you are not able to see the chart, your email client probably does not support javascript. To view it, please click here
|
| Stock Analysis |
The most influential factor behind Xerox's downward spiraling forecast is its declining equipment and office supplies sales. The recent recession has businesses across the world reducing budgets and excess spending. Major corporations are cutting spend levels with Xerox in hopes of eliminating unnecessary costs. In an attempt to capitalize on this market demand, Xerox and many of its competitors are working hard to offer consulting services that show businesses how to eliminate desktop printers by implementing a shared-network infrastructure of multifunctional printing and copying devices. Overall, it appears that the Xerox Corporation grossly underestimated the impact that the economy would have on its equipment and supplies sales. Unfortunately, the dipping economy was not the only factor Xerox underestimated.
|
Xerox was also a little too optimistic about the anticipated performance of its venture with Fuji. Xerox tasked Fuji to handle all the sales for the Asia region. However, according to Xerox, Fuji produced subpar results, which have hurt its forecasted earnings. In addition, Xerox has taken a beating on the weak dollar so far this quarter. The Xerox Corporation attributes 5% of its 18% decline in revenue to a currency impact. These two overseas missteps have only further compounded Xerox's forecasting problems, but there were also other factors at fault.
|
The Xerox Corporation has struggled tremendously with selling its higher-end technology products to larger clients. Xerox gains the largest margin on its higher-end products, but due to the economy, companies are hesitant to make the investment. As a result, clients are opting for the lower-end products, which severely impacts the gross margin. Xerox is much more inclined to move its higher-end offerings, but most of the time it does not have much of a choice. Unfortunately for Xerox, the majority of its sales consist of smaller margin items.
|
The combination of the struggling economy, failures in the Asia market, and the popularity of its lower-end products has forced Xerox to dramatically reconsider its first quarter forecast. However, there was some good news that came out Xerox's forecast readjustment. The Connecticut-based company announced that its market share has been increasing and is anticipated to continue to do so despite the recent economic conditions. The Xerox Corporation also noted that it is still on track to accrue $250 million in savings this year and is planning to cut $300 million in costs. Although this quarter has been difficult for Xerox, the printer and copier manufacturer has managed to identify the areas of its business strategy that need to be addressed. Only time will tell if Xerox is capable of overcoming these obstacles?
|
Profile |
Click here to view a detailed profile of Xerox.
|
|
|
|
|
