Xerox as expected on Friday revealed a slump in profits because of the costs associated with earlier legal settlements and Hurricane Katrina but launched its first share buyback in eight years.

The company, best known as a maker of office photocopiers, has instigated a $500m share buy-back programme to improve its earnings per share, which fell to 5 cents in the third quarter from 18 cents a share the year before.

After stripping out the exceptional costs, earnings per share were the same as last year and in line with analysts’ expectations.

Overall, net income fell by $100m to $163m in the third quarter on revenues of $3.8bn, up just $100m from last year.

Earlier this month, Xerox said accounting changes and an insurance charge related to Hurricane Katrina cut profit by $114m, or 12 cents a share, in the third quarter.

The group said there would be additional restructuring charges in the fourth quarter equal to 5 cents a share. Earnings for the current quarter are expected to be between 25 and 29 cents, the company said.

The group announced 2,600 job cuts in the last quarter as it grapples with new digital technologies and aims to generate more revenue from consultancy rather than its traditional photocopy machines.

Anne Mulcahy, chairman and chief executive, suggested that this transition was progressing: ““Xerox’s third-quarter results reflect the strength of our digital portfolio, especially in colour where our industry-leading technology delivered 22 per cent revenue growth,”

Gross margins improved from the second quarter but were down 1 percentage point at 41.3 per cent, compared to the same period last year.

Group debt fell by $700m in the quarter and by $3.3bn in the year to the end of the third quarter.

Xerox shares, which have fallen 15 per cent in the last year, were indicated to rise nearly 5 per cent when markets open in New York.

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