Xerox Posts 11% Drop, Issues Warning

Xerox Corp. said its third-quarter profit fell 11%, its first quarterly decline in three years, and said its sales and profit for the rest of 1999 and the first half of 2000 will be depressed by heightened competition and a sales force distracted by a reorganization.

The office machine manufacturer had profit of $339 million, or 47 cents a share, down from $381 million, or 53 cents, on a split-adjusted basis, a year ago. Revenue was $4.63 billion, barely up from $4.61 billion.

This isn’t what investors expected when Chief Executive G. Richard Thoman was hired in 1997 to battle Canon Inc. and Hewlett-Packard Co. for dominance of the office-equipment industry.

Shares in Xerox dropped $3.63, or 13%, to close at $23.81 on the New York Stock Exchange. The stock is down 44% since the company warned 10 days ago that it wouldn’t meet third-quarter profit forecasts.

Xerox Chief Financial Officer Barry Romeril said per-share profit in the fourth quarter will be about 20% less than in the year-ago period.

“In the first part of next year, many of the current issues will persist,” Romeril said on a conference call. “But the sales reorganization should [provide] positive momentum in the latter part of the year.”

Thoman said the stock drop has wiped out about two-thirds of his net worth.

Thoman isn’t the only Xerox employee who will pay for the profit slump. The third quarter’s per-share profit was boosted by 7 cents because Xerox has reclaimed reserves that it set aside for employee bonuses tied to profit projections. Now that those projections won’t be met, Xerox doesn’t have to pay the bonus and can funnel the reserves into its current earnings, Thoman said.

Xerox won’t offer forecasts for next year, Thoman said, citing the sales-force reorganization.

At a Glance

Other technology-related earnings, excluding one-time gains or charges unless noted, include:

* Network Associates Inc. earned $14.7 million, or 10 cents a share, in the third quarter, a penny better than estimates, compared with a loss of $14.4 million, or 11 cents, a year ago. Network Associates, which makes software for computer security and network management, said sales dropped 19% to $195.2 million. Including noncash interest, amortization and compensation charges, the company lost $241,000, or earnings were break-even on a per-share basis.

* Vitesse Semiconductor Corp.’s profit jumped 36% in its fiscal fourth quarter to $21.6 million, or 26 cents a share, a penny higher than estimates, from a restated $15.8 million, or 19 cents, a year ago. Revenue climbed 48% to $80.6 million at the Camarillo-based maker of non-silicon telecommunications chips.