Xerox profit beats estimates, shares rise 4 pct

While customers are still hesitant to buy new equipment, they are still signing up for Xerox's services that help clients identify ways to trim their own costs.

Xerox, which boosted its 2009 outlook, said third quarter net income was $123 million, or 14 cents a share, compared with $258 million, or 29 cents a share, one year earlier.

Analysts had expected a profit of 12 cents a share, according to according to Thomson Reuters I/B/E/S.

The results were the first for Xerox since it offered last month to buy Affiliated Computer Services  in a surprise deal aimed at moving Xerox into the business of managing back office systems and providing technology services.

"I think 2009 was going to be a challenging year no matter what for Xerox, and its reasonable to expect to that 2010 will be better after the deal," said Susquehanna International Group analyst Stephen Velgot.

The cash-and-stock deal -- Xerox's biggest ever -- is valued at around $5.5 billion. It is among the latest in the technology services sector, where reliable revenue streams have attracted hardware vendors looking to diversify, as customers think twice about big-ticket items like high-end printers.

But Xerox's shares have slipped more than 10 percent since the deal was announced, leading some to question whether shareholders will support such a transformative deal.

On its conference call with analysts, Xerox said the acquisition could yield 10-15 percent earnings growth on revenues around $25 billion by 2012.

Asked if the company's larger shareholders will support the acquisition, Xerox Chief Executive Ursula Burns said: "I am very confident that we will be able to get the vote."

Analyst Shannon Cross of Cross Research said the results show Xerox's operations stability, and reinforce optimism about the company's plan to buy ACS.

"We believe the combined company will be a very strong cash flow generator," she said.

Shares of the Xerox, whose rivals include Hewlett-Packard Co, and Canon Inc, were up 32 cents at $8.04 in afternoon trading on the New York Stock Exchange.

Total revenue at the world's No. 1 supplier of digital printer and document management services declined 16 percent to $3.68 billion, beating Wall Street estimates of $3.63 billion.

But Xerox also recorded a 15 percent reduction in costs, which led to an improvement in the company's gross margin.

It added that while sales of new equipment were down sharply, machines in the field, a measure of printers currently in the hands of customers, were up 1 percent.

Xerox expects fourth quarter earnings per share of 20 cents to 22 cents, which was about even with analyst views.

It lifted its full year earnings per share outlook to 55 cents to 57 cents, up from its previous range of 50 cents to 55 cents. (Reporting by Franklin Paul; Editing by Derek Caney)