UPDATE 2-Xerox says outsourcing margins to stay low after contract loss

Thu Oct 24, 2013 1:29pm EDT
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* Forecasts adj EPS $0.28-$0.30 vs est $0.33 from cont ops

* Third-qtr adj EPS $0.26 vs est $0.25 from cont ops

* Shares fall 10 pct (Adds details from conference call, analyst comments; updates share movement)

By Sruthi Ramakrishnan

Oct 24 (Reuters) - Xerox Corp warned that operating margins in what is now its biggest business, outsourcing services, would remain low in the current quarter due to the loss earlier this year of a high-margin federal contract to handle student loans.

The printer and copier maker's shares fell as much as 10 percent on Thursday morning even though it reported better-than-expected third-quarter results.

Xerox shares have risen 57 percent this year, largely due to anticipation that operating margins would improve in the outsourcing business, J.P. Morgan analyst Mark Moskowitz said.

"We are skeptical of margin improvement manifesting in the near term, thus we recommend investors take profits in Xerox," Moskowitz wrote in a note.

The outsourcing business provides services such as customer care, accounting and loan and data processing to a wide array of industries.   Continued...