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Xerox (XRX) Beats Q3 Earnings Estimates, Raises '19 EPS View

Zacks Equity Research

Xerox XRX reported mixed third-quarter 2019 results, with earnings beating the Zacks Consensus Estimate but revenues missing the same.

Adjusted earnings per share of $1.08 beat the consensus mark by 23 cents and increased 27.1% from the year-ago quarter’s figure. Total revenues of $2.20 billion missed the consensus mark by $16 million. The top line fell 6.5% year over year on a reported basis and 5.3% on a constant-currency (cc) basis.

Shares of the company have gained a massive 59.4% year to date, outperforming the 49.5% rally of the industry it belongs to.

Revenues by Segment

Equipment sales totaled $494 million, which declined 3.3% year over year on a reported basis and 2.2% on a constant-currency basis. The segment contributed 22% to total revenues.

Post sale revenues of $1.71 billion declined 7.3% year over year on a reported basis and 6.2% at cc. The segment contributed 78% to total revenues.

Revenues by Region

Revenues from Americas came in at $1.49 billion, down 3.7% year over year on a reported basis and 3.6% at cc. The region contributed 68% to total revenues.

EMEA revenues amounted to $641 million, down 10.1% year over year on a reported basis and 6.8% at cc. The region contributed 29% to total revenues.

Revenues from Other region totaled $72 million, down 24.2% year over year on a reported basis as well as at cc. The region contributed 3% to total revenues. 

Operating Performance

Adjusted operating profit of $267 million rose 3.9% year over year. Adjusted operating margin improved 120 basis points (bps) year over year to 12.1%.

Selling, administrative and general expenses, as a percentage of revenues, declined to 23.3% from 24.8% reported in the year-ago quarter. Research, development and engineering expenses, as a percentage of revenues, increased to 4.5% from 4.3% reported in the prior-year quarter.

Balance Sheet and Cash Flow

Xerox exited the third quarter with cash, cash equivalents and restricted cash balance of $922 billion compared with $712 million at the end of the year-ago quarter. Long-term debt was $3.23 billion, compared with $3.96 billion at the end of the prior-year quarter.

The company generated $356 million of cash from operating activities and capex was $17 in the reported quarter. Free cash flow was $339 million.

2019 Guidance

Xerox raised its 2019 guidance for adjusted EPS, operating cash flow and free cash flow. The company now expects adjusted EPS in the range of $4.00 to $4.10, compared with the previous guidance of $3.80 to $3.95. The current Zacks Consensus Estimate is pegged at $3.89.

The company expects free cash flow in the range of $1.1 to $1.2 billion, compared with the previous guidance of $1.0-$1.1 billion. Operating cash flow is anticipated between $1.2 billion and $1.3 billion. Revenues are expected to decline roughly 6% at cc.

Zacks Rank & Stocks to Consider

Currently, Xerox carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Business Services sector are FleetCor FLT, S&P Global SPGI and Paychex PAYX, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings (three to five years) growth rate for FleetCor, S&P Global and Paychex is estimated at 15.6%, 10% and 7%, respectively.

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