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Xerox posts first quarter loss in ‘volatile’ environment

Print giant Xerox recorded $1.67 billion of revenue for the first quarter in 2022, down 2.5% year-over-year, with an operating loss of $56m compared to a profit of $39m in Q1 2021. In response, Xerox shares fell by more than 15% to $16.87 and have declined 25% this year.

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"Increasingly volatile operating
  environment": John Visentin
               CEO Xerox

“Revenue was in line with expectations this quarter despite an increasingly volatile operating environment,” said Xerox vice chairman and CEO John Visentin. “Underlying demand for our products and services remains strong, as indicated by our growing backlog and growth in post-sale revenue. 

“Broad-based inflationary pressure and increased logistics costs from supply chain disruption resulted in an operating loss, but we expect to offset most of these cost increases over time with price actions and additional Project Own It savings.

"We remain focused on executing the strategic roadmap presented at our Investor Day in February and are committed to monetizing our investments in new businesses in ways that maximize shareholder value.”

Xerox First Quarter 2022 Overview:

During the first quarter 2022, our business faced several challenges. Supply constraints continued to inhibit our ability to fulfil demand, resulting in the growth of our backlog to $422 million, a 21% sequential increase and nearly three times prior year period's levels. As demand and backlog grow, we are focused on maintaining our levels of client satisfaction. 

We continue to expect supply chain constraints to begin easing in the second half of the year. We did see slight improvements in page volumes and volume-driven post sale revenue in the first quarter 2022, particularly in March as the Omicron variant waned and more employees returned back to the office. Third-party data points to gathering momentum in return to office trends. We expect progressive improvement in workplace attendance each month and a broader return of employees to the office in the second half of the year. 

Lastly, in the first quarter 2022, we also saw an acceleration of inflationary pressure on costs throughout our business, particularly for logistics and labour. We have enacted a series of price increases and currently expect to offset these inflation-related cost increases over time as we enforce price adjustments within our contractual business and further rationalize our cost base. 

With respect to the war in Ukraine, we halted shipments to Russia when sanctions were imposed. The resulting financial impact has thus far been minimal. The Eurasian region in total comprised a low single digit percentage of our revenue and operating profits in 2021. Despite these uncertainties, we are maintaining our revenue and cash flow outlook, as we continue to expect supply chain constraints and return to office trends to improve in the second half of the year, and we are implementing counteractive measures in response to geopolitical uncertainty and inflationary pressures.

2022 Guidance

We are maintaining our revenue and cash flow guidance for 2022. Our guidance assumes that in the second half of the year supply chain disruption will begin to subside and return to office trends will continue to improve. 

Our free cash flow guidance excludes payments associated with this quarter’s one-time product supply contract termination charge.
Revenue of at least $7.1 billion in actual currency.
Free cash flow of at least $400 million.
Return at least 50% of free cash flow to shareholders.