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Xerox (XRX) Misses Q1 Earnings Estimates, Reiterates View

Zacks Equity Research

Xerox Corporation XRX reported dismal first-quarter 2017 results with adjusted earnings of $154 million or 15 cents per share, down from $186 million or 18 cents per share in the year-ago quarter. The year-over-year decrease was primarily due to lower revenues. Also, adjusted earnings missed the Zacks Consensus Estimate by a penny.

Total revenue for the first quarter was $2,454 million compared with $2,615 million in the year-earlier quarter. The year-over-year decrease was attributable to decline in both its operating segments.

Segment Realignment

Post the separation of its BPO business, the company realigned its operations to better manage its business and serve its customers. In 2017, the company intends to focus on geographic expansion and is mainly organized from a sales perspective on the basis of “go-to-market” sales channels. These sales channels will help serve customers a wide range of products and services. As a result of this transition and change in structure, the company currently operates as one reportable segment, the design, development and sale of document management systems and solutions.

Restructuring Update

On Dec 31, 2016, Xerox completed the separation of its business process services unit into an independent company named Conduent Incorporated CNDT.

The company incurred restructuring and related costs of $120 million.  These expenses include restructuring and asset impairment charges of $110 million as well as $10 million of additional costs, primarily related to professional support services associated with the implementation of the Strategic Transformation program.

First-quarter net restructuring and asset impairment charges of $110 million included $110 million of severance costs related to headcount reductions of approximately 1,000 employees worldwide and $2 million of lease cancellation.

As of Mar 31, 2017, restructuring reserve balance for all programs were $178 million, of which $175 million is likely to be spent over the next 12 months.

During second-quarter 2017, the company anticipates to incur additional restructuring charges of approximately $50 million for actions and initiatives that have not yet been finalized. For full-year 2017, it continues to expect restructuring and related costs of approximately $225 million.

Financial Position

As of Mar 31, 2017, Xerox had cash and cash equivalents of $1,045 million while long-term debt was $4,988 million. Net cash provided by operating activities for the quarter was $110 million.

Xerox Corporation Price, Consensus and EPS Surprise

 

Xerox Corporation Price, Consensus and EPS Surprise | Xerox Corporation Quote

Guidance

Xerox reiterated its full-year 2017 guidance. It expects GAAP earnings in the range of 44–52 cents per share and adjusted EPS in the range of 80–88 cents per share.The company continues to expect cash flow to be around $700–$900 million and free cash flow is likely to be in the range of $525–$725 million in 2017.  

Xerox currently has a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the same industry include Performant Financial Corporation PFMT and Everi Holdings Inc. EVRI. Everi  carries a Zacks Rank #2 (Buy) while Performant Financial sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Performant Financial has a long-term earnings growth expectation of 20%.

Everi has a long-term earnings growth expectation of 20%.

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