We are pleased with our earnings results for the quarter. IKON has delivered earnings that were within our stated goal for the quarter, at a time when many in our industry are encountering a number of strategic and financial issues, stated James J. Forese, Chairman and Chief Executive Officer. More importantly, our results reflect a number of positive signals, such as continued growth in sales of copiers and printer equipment, growth in outsourcing, and strong growth and productivity in our equipment service aftermarket. We believe these are some of the catalysts needed to support expanded revenue growth and operating margins, as well as continued strong cash flows long-term.
Revenues for the first quarter of both fiscal 2001 and 2000 were $1.32 billion. Without the negative effect of foreign currency, revenue growth for the first quarter of fiscal 2001 compared to the prior year would have been 1.5%.
We continued to advance in critical areas of our business. Specifically, sales of copier and printer equipment grew 6% from the prior year worldwide and our facilities management business again delivered double digit growth. Given today’s competitive environment and the obvious signs of a slowdown in the U.S. economy, we are encouraged by these results. Revenue growth in key areas of our business was offset by our de-emphasis on revenues associated with our low-margin technology hardware sales and certain non-strategic service offerings, as we continue to prioritize revenues associated with long-term profitability and strategic value, Forese said.
Revenues from Net Sales, consisting of copier and printer equipment revenues, technology related hardware, and supplies, grew .5% in the quarter compared to last year, as declines in supplies and technology hardware revenues offset continued strong growth in equipment sales. In IKON North America, copier and printer equipment sales grew 7%, while in Europe these revenues grew 9% in local currency. Gross margin on Net Sales strengthened slightly from the prior year due to a change in the revenue mix.
Service & Rentals revenues, which include equipment service revenues, outsourcing, and technology service revenues, declined 2.3% from the prior year. Growth in outsourcing revenues was offset by a decline in technology and equipment service revenues. While equipment service revenues were down from the first quarter of last year, equipment service productivity was up by 10%, strengthening equipment service gross margins. Service & Rentals gross margin experienced a decline in comparison to the prior year primarily due to equipment service comprising a lower percentage of the overall revenue mix. On a sequential basis, the first quarter’s equipment service revenues were 3% higher than those reported in the fourth quarter of fiscal 2000 – reflecting the aftermarket growth opportunity associated with the Company’s growing equipment base in the digital and higher-end market.
Finance Income grew 15.1% due to continued growth of the Company’s leasing portfolio. During the quarter, over 70% of the Company’s copier and printer equipment revenues were financed through IOS Capital, the Company’s captive finance subsidiary. Gross margin on Finance Income declined slightly due to higher interest costs not yet reflected in customer lease rates.
Selling and Administrative expense increased as a percentage of revenues due primarily to higher selling costs associated with the build up of the Company’s sales force targeted at key growth areas. The increase also reflects the investments IKON is making as part of its strategy to develop differentiated services that will enhance productivity and customer satisfaction, including Digital Express® 2000, its Web based e-procurement offering, as well as its comprehensive e-commerce strategy.
Near Term Outlook
We are confident that our progress to date will allow us to take advantage of the many opportunities we see before us, stated Forese. However, we are naturally cautious regarding the competitive and economic environment. As a result, we are already taking actions to improve our ability to respond to these challenges. For our second quarter, we believe our earnings will show flat to slight improvement from the first quarter. However, on a year-to-year comparison they should be lower as we continue to focus on long-term investments and competitive opportunities.
Forese concluded, IKON continues to be a significant player in this industry and we are in a great position to capture a number of opportunities.
