Second-quarter earnings at Xerox Corp. fell 68 percent due to a charge for accounting irregularities in its Mexico subsidiary and a decline in revenues for certain products. The results matched Wall Street's expectations.
The company said Wednesday that for the three months ended June 30, it had net income of $145 million, or 19 cents per share, compared with $448 million, or 62 cents per share in the same period a year ago. That includes a charge of $78 million, or 11 cents per share, to cover problems associated with its Mexican operation.
Without the special charge, Xerox had earnings of $222 million, or 30 cents per share, which matched the estimate by a consensus of analysts surveyed by First Call/Thomson Financial.
Xerox said a revenue decline in high-speed black-and-white production printing and publishing products created the most significant effect on income. It also said a realignment of its sales force also continued to adversely affect revenues.
"Though disappointing, these results reflect the difficulties found in our visits and reviews of operations around the world over the last two months," said Anne Mulcahy, president and chief operating officer.
"There is no doubt that the time required for recovery is longer than previously anticipated. Stabilizing the situation has been our focus and much progress has been made, but achieving renewed growth will take more time," she said.
Investors weren't pleased with the news, sending shares of the Stamford-based company down $2.50 to $15.688.
Xerox had warned last month that it expected a charge of about 6 cents per share for the Mexican problems.
Chief executive Paul Allaire said Wednesday that the accounting irregularities, which are being investigated by the Securities & Exchange Commission, appear to have been caused by several senior managers in Mexico who collaborated to circumvent Xerox accounting policies and administrative procedures. He said their actions resulted in the charge, which is primarily for bad debt and unrecorded liabilities.
"We have no reason to believe that the special circumstances that existed in Mexico are replicated in any other country," Allaire said.
The effect of foreign currency translation also hurt earnings by about 4 cents per share during the quarter.
Second-quarter revenue was $4.69 billion, 4 percent lower than the $4.86 billion earned in the year-ago period.
The company said there were some improvements during the quarter, including Brazil's continued strong recovery and a 50 percent increase in Fuji Xerox's net income.
For the first six months of the year, Xerox reported a loss of $98 million, or 17 cents per share, compared with net income of $791 million, or $1.09 per share a year ago.
Revenues for the six-month period declined to 9.12 billion, compared with $9.16 billion a year ago.