Xerox (XRX) Earnings Miss Estimates In Q1, Revenues Beat

Xerox Corporation (NYSE:XRX) reported mixed first-quarter 2018 results, wherein the company’s bottom line lagged the Zacks Consensus Estimate but the top line surpassed the same.

Adjusted earnings per share of 68 cents were up by a penny from the year-ago quarter but lagged the Zacks Consensus Estimate by 2 cents.

In January 2018, Xerox and FUJIFILM inked a definitive deal worth $6.1 billion to combine the FujiXerox joint venture with Xerox. Per the deal, Fujifilm will own 50.1% of the combined company.

Xerox is expected to declare a special one-time cash dividend of $2.5 billion or around $9.80 per share (based on the shares of Xerox common stock outstanding as of Mar 31, 2018). The special dividend will be paid before the closing and funded by a new borrowing as discussed under “Bridge Facility".

Fujifilm will not be a shareholder of Xerox as of the record date for the special dividend and will not receive any payment.

We observe that shares of Xerox have gained a mere 0.1% in the past six months compared with the industry’s rally of 5.3%.

Revenues

Total revenues of $2.43 billion however beat the Zacks Consensus Estimate of $2.38 billion. The figure was down 0.8% year over year and 4.6% on a constant currency basis.

Equipment sales of $499 million were down 2.7% year over year or 6.4% on a constant currency basis.

Post sale revenues of $1.93 billion were down 0.3% year over year or 4.1% on a constant currency basis.

Operating Results

Gross profit was $970 million compared with $975 million in the prior-year quarter. Total gross margin was 39.8% compared with 39.7% in the prior-year quarter.

Gross margin for Equipment was 32.3% compared with 30.7% in the prior-year quarter. Gross margin for Post sale was 41.8% compared with 42.1% in the prior-year quarter.

Adjusted operating profit was $253 million compared with $270 million in the year-ago quarter. Adjusted operating margin was 10.4% compared with 11.0% in the prior-year quarter.

Total selling, general and administrative expenses declined to $628 million from $634 million in the year-ago quarter. Research, development and engineering expenses declined $11 million from the prior-year quarter to $100 million.

Balance Sheet and Cash Flow

Xerox exited first-quarter 2018 with cash and cash equivalents of $1,398 million compared with $1,293 million at the end of December 2017. As of Mar 31, 2018, long-term debt was $4,811 million compared with $5,235 million as of Dec 31, 2017.

The company generated $216 million of cash from operating activities in the reported quarter compared with $52 million in the year-ago quarter. Free cash flow was $198 million in the reported quarter compared with $160 million in the year-ago quarter.

During the reported quarter, the company returned $67 million in dividends to shareholders.

Zacks Rank & Upcoming Releases

Xerox currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Investors interested in the broader Business Services sector are keenly awaiting earnings reports from key players like Gartner, Inc. (NYSE:IT) , The Dun & Bradstreet Corp. (NYSE:DNB) and Broadridge Financial Solutions Inc. (NYSE:BR) . While Garter and Dun & Bradstreet will release first-quarter 2018 results on May 8 and May 9, respectively, Broadridge will report third-quarter fiscal 2018 numbers on May 8.

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