Xerox (XRX) 27 7/16: Often when a company warns, the stock is hit hard at the time of the warning, and then is relatively stable when the actual earnings release comes out. That was the case with Xerox, which lost almost 25% of its market value on October 8, when it warned that earnings would be below estimates. The stock fell more than $10 to $32. Today, the earnings report is released, and the picture is even worse than what was painted on October 8. The company's revenue was flat, at $4.63 billion, versus $4.61 billion a year ago, and $4.8 sequentially. Earnings were $0.47 a share, versus $0.53 a cent a year ago, and $0.62 sequentially. To make matters even worse, the profit margin declined 3 points to 43%. All around, it paints a picture of a large company with no growth and rising expenses. To really make the picture look bad, the company projects that their problems will extend into Q4 and Q1 of next year. "Intense competition" gets blamed for pricing pressure, as well as currency exchange problems in Brazil. The Brazil situation has to be deciphered from the report, but it is blamed from dropping pre-currency revenue growth from 6 percent to 2 percent growth. But that's pre-currency. Xerox lost a lot of money in Brazil, but the details aren't in the press release. Have to wait for the conference call for the details. And you know that the conference call is going to be personal torture for Xerox management. The press release even quotes Rick Thoman, Xerox president and CEO as saying "These results are totally unacceptable. Our shareholders have a right to expect better execution." Kind of an invitation to start whipping management. Or selling shares. The outlook is bleaker for Xerox than it was when they warned, and today is not likely to be a good one for Xerox shares. - RVG
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