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Xerox (XRX) Misses Q4 Earnings and Revenue Estimates

Zacks Equity Research

Xerox Corporation XRX reported disappointing fourth-quarter 2018 results, missing the Zacks Consensus Estimate on both counts.

Adjusted earnings per share of $1.14 missed the consensus mark by 2 cents but increased 11 cents from the year-ago quarter’s tally. Total revenues of $2.53 billion missed the consensus mark by $99 million. The top line fell 7.8% year over year on a reported basis and 6.1% on a constant-currency basis.

Shares of Xerox have declined 26% in the past year compared with the industry’s 1.4% decline.

Let’s check out the numbers in detail.

Revenues by Segment

Equipment sales totaled $629 million, which declined 9.5% year over year on a reported basis and 7.7% on a constant-currency (cc) basis. The segment contributed 25% to total revenues.

Post sale revenues of $1.90 billion declined 7.2% year over year on a reported basis and 5.5% at cc. The segment contributed 75% to total revenues.

Revenues by Region

Revenues from North America came in at $1.52 billion, down 5.2% year over year on a reported basis and 4.9% at cc. The region contributed 60% to total revenues.

International revenues amounted to $929 million, down 7.2% year over year on a reported basis and 3.2% at cc. The region contributed 37% to total revenues.

Revenues from Other region totaled $87 million, down 40% year over year on a reported basis as well as at cc. The region contributed 3% to total revenues.

Xerox Corporation Revenue (TTM)


Xerox Corporation Revenue (TTM) | Xerox Corporation Quote


Operating Results

Gross profit of $1.01 billion fell 8.5% from the prior-year quarter’s figure. Total gross margin of 40% declined 30 basis points (bps) year over year.

While equipment gross margin surged 532 bps on a year-over-year basis to 33.1%, post sale gross margin contracted 230 bps to 42.3%.

Adjusted operating profit of $409 million was up 4.3% year over year. Adjusted operating margin improved 180 bps year over year to 16.1%.

Selling, administrative and general expenses, as a percentage of revenues, declined to 21.9% from 23.2% in the year-ago quarter.Research, development and engineering expenses, as a percentage of revenues, declined to 3.7% from 3.9% in the prior-year quarter.

Balance Sheet and Cash Flow

Xerox exited the fourth quarter with cash, cash equivalents and restricted cash balance of $1.15 billion compared with $1.22 billion at the end of the previous quarter. Long-term debt was $4.27 billion compared with $4.82 billion in the preceding quarter. The company generated $415 million of cash from operating activities in the reported quarter.

Xerox returned $969 million to shareholders through share repurchase and dividends in 2018.

2019 Guidance

Xerox expects adjusted earnings between $3.70 and $3.80 per share, higher than the Zacks Consensus Estimate of $3.66. Revenues are expected to decline roughly 5% at cc.

The company expects operating cash flow in the range of $1.15-$1.25 billion and free cash flow in the range of $1.0-$1.1 billion.

Adjusted operating margin is anticipated between 12.6% and 13.1%, an expansion of 100-150 bps year over year.

Zacks Rank & Upcoming Releases

Xerox currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader Business Services sector are General Finance Corporation GFN, Omnicom Group Inc OMC and Paychex, Inc PAYX, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term expected EPS (three to five years) growth rate for General Finance, Omnicom and Paychex is 11%, 6.9% and 8.8%, respectively.

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