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Xerox (XRX) Reports In-Line Q3 Earnings, Trims Outlook

Xerox CorporationXRX reported relatively modest third-quarter 2016 results with adjusted earnings of $286 million or 27 cents per share compared with $289 million or 27 cents per share in the year-ago quarter. The year-over-year decrease in adjusted earnings was primarily due to lower revenues. The adjusted earnings were in-line with the Zacks Consensus Estimate.

GAAP income (from continuing operations) for the reported quarter was $181 million or 17 cents per share as against a loss of 31 million or 4 cents per share in the year-ago quarter. Total revenue for the third quarter was $4,212 million compared with $4,333 million in the year-earlier quarter.

The year-over-year decrease was attributable to decline in both the operating segments. Revenues missed the Zacks Consensus Estimate of $4,315 million. Adjusted operating margin and gross margin for the reported quarter was 9.2% and 31.3%, respectively.

Segment Performance

Revenues from the Services segment, which include Document Outsourcing (DO) and Business Process Outsourcing (BPO), were up 1% year over year to $2,398 million (57% of total revenues) in the reported quarter.

Revenues in the Document Technology segment declined 9% year over year to $1,626 million due to weak sales and an adverse currency impact. Segment margin remained strong at 13.1%.

Restructuring Update

The company remains on track to complete the split by year-end 2016. Its BPO firm would be renamed as "Conduent Inc.", while its Document Technology (DT) division would retain the Xerox brand name. Ashok Vemuri will become the chief executive officer of the BPO firm, while Jeff Jacobson will serve as the chief executive officer of DT. Ursula Burns will continue as the chairman and chief executive officer of Xerox until the separation and serve as chairman of the Xerox board following the separation.

The company expects to incur one-time separation costs of $175 to $200 million pre-tax from the split, down from its earlier estimate of $200 to $250 million. Restructuring and related charges are estimated to be approximately $300 million for 2016, $71 million of which was incurred in the second quarter and $197 million year-to-date.

As part of the restructuring, Xerox has decided to execute a three-year strategic transformation program to improve its productivity and reduce costs across the businesses. The company remains on track to save about $700 million in 2016 from the restructuring activities. When combined with savings from cost streamlining actions currently in process, Xerox intends to realize cumulative cost reduction of $2.4 billion over three years.

During the reported quarter, Xerox recorded $126 million as restructuring charges and expects to record $300 million for the same in 2016. During the quarter, the company appointed Brian Webb-Walsh as chief financial officer (CFO) of Conduent Incorporated, upon completion of the separation.

The company also unveiled the new logo for Conduent. Its visual identity will distinguish the brand and will reflect the company's positioning, business model and key stakeholders.

XEROX CORP Price, Consensus and EPS Surprise

XEROX CORP Price, Consensus and EPS Surprise | XEROX CORP Quote

Financial Position

As of Sep 30, 2016, Xerox had cash and cash equivalents of $1,423million, while long-term debt was $5,346 million. Net cash provided by operating activities for the quarter was $370 million compared with $271 million in the year-ago period.

Guidance

Xerox expects fourth-quarter GAAP earnings in the range 11-14 cents per share and adjusted EPS between 32-35 cents per share. The company narrowed its full-year guidance for GAAP EPS to 45-48 cents (from 14-16 cents earlier) and adjusted EPS in the range $1.11-$1.14 from 26-28 cents earlier. However, it continues to expect full-year 2016 cash flow from operations between $950 million-$1.2 billion and free cash flow in the range $600-$850 million.

Xerox currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry include Accenture plc ACN , Exponent Inc. EXPO and Navigant Consulting Inc. NCI . Both Accenture and Exponent carry a Zacks Rank #2 (Buy), whereas Navigantsports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Accenture has a modest earnings record, beating estimates thrice in the four trailing quarters, with an average positive surprise of 3.19%. The company's share price has increased by approximately 10.49% year to date.

Exponent has a modest earnings record, beating estimates thrice in the four trailing quarters, with an average positive surprise of 9.71%. The company's share price has increased by approximately 12.77% year to date.

Navigant has a solid earnings record, beating estimates on all occasions in the four trailing quarters, with an average positive surprise of 29.31%. The company's share price has increased by approximately 41.97% year to date.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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