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Xerox Q2 Earnings Marginally Beat Estimates, Revenues Down Y/Y

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Xerox Corporation (XRX) reported net income (from continuing operations) of $270 million or 22 cents per share in the second quarter of 2014 compared with $294 million or 23 cents a share in the year-ago quarter. The year-over decrease in earnings was primarily attributable to a decline in revenues.

Excluding non-recurring items, adjusted earnings (from continuing operations) for the reported quarter were $322 million or 27 cents per share versus $345 million or 27 cents per share in the year-earlier quarter.  Adjusted earnings for the reported quarter marginally exceeded the Zacks Consensus Estimate by a penny.


Xerox Corporation - Earnings Surprise | FindTheBest


Total revenues in the reported quarter decreased 2% year over year to $5,292 million. Quarterly revenues missed the Zacks Consensus Estimate of $5,339 million. Adjusted operating margin for the reported quarter was up 0.3% year over year to 9.7%, while gross margin was 30.8%.

Segment Performance

Revenues from the Services segment, which include Document Outsourcing (DO), Business Process Outsourcing (:BPO) and Information Technology Outsourcing (I.TO), increased 2% year over year to $2,992 million in the reported quarter (57% of total revenues). While revenues from DO, ITO and BPO increased due to growth in commercial healthcare and commercial European BPO businesses, improvement in Europe and strength in healthcare offerings further bolstered the segment’s top-line growth.

Segment margin decreased 1.6% year over year to 8.6% largely due to reduced margins in government healthcare. Total Services sales pipeline grew 4% year over year. Total contract value of deal signings aggregated $2.8 billion with BPO, DO and ITO accounting for $2.0 billion, $700 million and $100 million, respectively.

Revenues in the Document Technology segment dipped 6% year over year to $2,125 million (40% of total revenues) due to a fall in equipment sales and annuity revenues.

Segment margin increased 3.6% year over year in the reported quarter to 14.4% owing to benefits from cost productivities, lower pension expense and positive effects from restructuring. The revenue mix for the segment comprised 58% mid-range, 22% high-end and 20% for entry-level products.

Revenues in the Other segment decreased 4% to $175 million (3% of total revenues) due to lower wide format and licensing revenues.  Segment loss of $76 million increased $15 million from the year-ago quarter, primarily driven by lower licensing revenue.

Financial Position

Xerox had cash and cash equivalents of $1,007 million as of June 30, 2014, compared with $929 million in the prior-year period. Long-term debt at the end of the reported quarter stood at $6,354 million versus $6,904 million as of Dec 31, 2013.

Net cash from operating activities in the reported quarter was $325 million versus $533 million in the year-ago period. The company repurchased $204 million worth of shares in the reported quarter. Also the company spent $227 million on acquisitions in the reported quarter.  


For third quarter 2014, Xerox expects GAAP earnings between 21 cents and 23 cents per share, while adjusted earnings are expected to be within 25 cents to 27 cents.

For full year 2014, Xerox updated its GAAP earnings guidance in the range of 92 cents to 96 cents per share from 90 cents to 96 cents previously. Adjusted earnings are expected between $1.09 and $1.13 per share.

Moving forward, Xerox expects to realign its business model to better adapt to evolving market trends by expanding indirect distribution channel and streamlining its supply chain and product portfolio.

Share prices dipped in pre-market trading as investors probably expected a healthy beat, higher revenues and a more positive outlook from the company.

Xerox currently has a Zacks Rank #4 (Sell). Other stocks that look promising in the industry and are worth a look now include Canon Inc.  (CAJ),  carrying a Zacks Rank #1 (Strong Buy), and Lexmark International Inc (LXK) and Ricoh Company, Ltd  (RICOY),  each carrying a Zacks Rank #2 (Buy).

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