Xerox Earnings a Mixed Bag as Company Prepares to Split

Xerox Corp. (NYSE: XRX) reported first-quarter 2016 results before markets opened Monday. The business technology firm posted quarterly adjusted diluted earnings per share (EPS) of $0.22 on revenues of $4.28 billion. In the same period a year ago, the company reported EPS of $0.24 on revenues of $4.47 billion. First-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $0.23 and $4.24 billion in revenues.

Xerox said it is on track to file its registration statement in July to complete the separation of the company into two businesses, essentially wiping the slate back to 2009 when Xerox acquired business software and services business ACS. The split was instigated by activist investor Carl Icahn and announced in January.

In the first quarter, Xerox said revenue in its Services business increased by 1% to $2.5 billion (up 2% in constant currency) and service margins rose slightly to 7.7%.

Revenue in the Document Technology business came in at $1.6 billion, down 10% (down 9% in constant currency). Margin fell 2.5 points to 10.2%.
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Ursula Burns, who is among the executives on our list of CEOs who have to go, had this to say in the earnings report:

We delivered adjusted EPS in line with our guidance, revenue growth in both the Document Outsourcing and BPO businesses of our Services segment, and a strong renewal rate in Services. Document Technology revenue declines remained in line with last quarter and continue to be pressured by weak developing markets economies. We have accelerated our cost reduction efforts across the company and expect to begin realizing the benefits in the second quarter. … We put in place a robust program management structure, mapped our path to the separation, initiated leadership searches and began building the strategic, operational and financial foundation of each company.

Xerox expects second-quarter 2016 GAAP earnings of six to eight cents per share and adjusted EPS of $0.24 to $0.26 per share. The consensus estimate calls for adjusted EPS of $0.26 on revenue of $4.39 billion.

For full-year 2016, Xerox expects adjusted EPS in a range of $1.10 to $1.20 per share.

The company now expects full-year GAAP EPS of $0.45 to $0.55, down from a prior estimate $0.66 to $0.76. Xerox expects full-year 2016 cash flow from operations of $950 million to $1.2 billion, down from an earlier estimate of $1.3 billion to $1.5 billion, and free cash flow of $600 million to $850 million, down from $1.0 billion to $1.2 billion. The company said it is aligning its full-year GAAP EPS and cash flow guidance to reflect separation costs and higher restructuring and related costs.

Xerox shares closed at $11.17 on Friday, up about 0.1% for the day and were inactive early Monday morning. The stock’s 52-week range is $8.48 to $11.88. Thomson Reuters had a consensus analyst price target of around $11.59 before the report.