The Stamford, Conn.-based company said it faced challenges to earnings growth in Brazil and Japan and ongoing pressure from unfavourable exchange rates in Europe and Canada against a strong U.S. Dollar, reflected in the second-quarter's meagre 3-percent revenue growth to $4.86 billion from a year ago.

In response, Xerox stock fell $4.37 to close at $50.81 in heavy New York Stock Exchange trading on Thursday.

Operating net income for the quarter rose to $448 million, or 62 cents per diluted share, compared with $395 million, or 58 cents per share. The latest quarter's results matched analysts' consensus expectations, according to a survey by First Call Corp., which tracks brokerage estimates.

The year-ago results excluded a $1.1 billion restructuring charge to cover the cost of 9,000 net jobcuts and some office closings, mostly in Europe. With the charge, Xerox had a net loss a year ago of $712 million, or $1.10 per diluted share.

"We are pleased with the rebound in revenue growth in the U.S. And Europe, which we expect to improve further in the second half of the year," said President and Chief Executive Rick Thoman in a statement accompanying earnings.

But later, in a conference call with Wall Street analysts, Xerox vice chairman Barry Romeril said profits for the rest of 1999 would likely be cut by five cents to 10 cents per share due to the negative effects of translating overseas sales into U.S. Dollars.

The negative currency effect contrasts with hopes coming into 1999 that currency would boost Xerox profits by 15 cents to 20 cents in 1999 -- before a Brazilian currency devaluation and the U.S. Dollar turned stronger versus other currencies.

Thoman said, "Any continuation of the current weak European exchange rates together with ongoing weakness in Brazil and Japan make thisearnings growth a much more challenging objective for the remainder of the year."

Prudential Securities analyst B. Alex Henderson said earnings were in line but revenues "came in on the light side" of Wall Street hopes. "The issue in the quarter was revenues. The Street (wasn'T) focused on the earnings," he said.

"That's going to keep people cautious on the stock over the near-term," Henderson warned.

Revenues for new digital products, including copiers and multifunction copier-printers, grew 26 percent. These represented 52 percent of total Xerox revenues and were fuelled by strong sales of high-speed, black-and-white departmental office copiers, said Xerox spokesman Judd Everhart.

The older Xerox light-lens copier business fell 20 percent in the second quarter due to weakness in Brazil, continued pricing pressures, and the customer transition Xerox is encouraging to digital copiers.

This "classic" copier piece of the Xerox business amounted to 31 percent of total revenues. The remaining 17 percentof the total derived from sales of paper and equipment supplies.

Operating profit margins improved 1.5 percent to 14.3 percent during the quarter, as marketing and corporate administration expenses were cut by 2 percent.

Revenues grew 9 percent in the United States and 6 percent in Europe, before translating overseas sales into U.S. Dollars.

Weaker European currencies reduced second-quarter total revenue growth by 1 percentage point to $4.9 billion, which Prudential's Henderson cited as the most troubling concern.

"Europe's 6 percent revenue growth was disappointing," Henderson said. "The company is indicating they plan to add two to three points in the second half of this year, but (the negative effect of) currency will eliminate that. So no top-line improvement is in store," he said of potential revenue growth.

Romeril said Xerox's outlook is further complicated by its bid to encourage customers to upgrade to new digital and colour printing equipment from classic Xerox black-and-white copiers,despite pricing pressures from rivals.

In speaking to analysts, Romeril, who is also Xerox Chief Financial officer, sounded what he said was a "more cautionary tone for the latter part of the year."

If current exchange rates with Europe, Japan, Canada and Brazil continued, Romeril told analysts he expected Xerox earnings to be "cut by 5 cents to a dime (10 cents) for 1999."

Previously, Financial analysts had projected the Stamford, Conn.-based company would earn $2.68 per share in the 1999 full year compared with $2.33 per share in 1998, according to a recent First Call Corp. survey of brokerage estimates.