Xerox Holdings Corp (NASDAQ: XRX) reported a fiscal third-quarter 2024 sales decline of 7.5% year-on-year to $1.53 billion, missing the analyst consensus of $1.63 billion. This was the company’s seventh consecutive quarter of revenue missing the expectations.
Quo vadis Xerox? The signs are not encouraging.
One month ago, we reported on the 'Ever shrinking Xerox' - a sad and avoidable tale of the once mightiest digital printer and copier force on the planet. Now, with its seventh consecutive quarter missing targets, its stock has continued to head south and most Wall Street analysts are recommending a 'strong sell.'
Caught in a maelstrom of declining MFP (multi-function office printers) sales, increased competition from Canon, Ricoh, Konica Minolta, HP Indigo, Kyocera, Sharp and others, plus exclusion from some of the world's fastest growth markets (Asia-Pacific-Oceania), following the dissolution of the Fuji Xerox joint venture with Fujifilm; Xerox is also still reeling from the years of raiding by short-seller activist Carl Icahn - who wisely bailed out last September when Xerox bought back his remaining stake at over USD$15 a share for a total of USD$542 million. Fujifilm's original 2018 offer to buy a majority stake in Xerox valued the shares at around USD$39.
Fujifilm Business Innovation still has a supply agreement in place for Xerox, including the excellent Iridesse production digital press but, with that level of production print steadily moving over to inkjet (Canon's deal with Heidelberg is an example); the longevity of toner-based digital colour printing has to be considered. In ANZ, Fujifilm assumed support responsibility for all Fuji Xerox installed equipment, but for sales can not use the Xerox brand name.
Despite all this, Xerox remains a great brand with great products - it just seems shackled by market changes, lack of significant new technology and the aftermath of poor decisions made in the past.
Q3 highlights
Xerox revenues declined 7.3% at constant currency. Adjusted EPS of $0.25 missed the analyst consensus estimate of $0.51. XRX stock dropped significantly after the announcement.
Equipment sales decreased by 12.2%, while post-sale revenue declined by 6.1%. Gross margin was firm Y/Y at 32.4%. The equipment margin fell by 250 basis points to 28.5%. The post-sale margin increased by 60 basis points to 33.5%.
The company reported an adjusted operating income of $80 million, compared to $68 million last year, and the margin grew 110 basis points to 5.2%.
Xerox held $521 million in cash and equivalents as of September 30, 2024. Operating cash flow for the quarter totaled $116 million, with a free cash flow of $107 million.
Steve Bandrowczak, CEO at Xerox said: “While equipment revenue fell short of expectations, we continue to see steady progress from Reinvention initiatives taken to date. Adjusted operating income and margin grew year-over-year, and the pending acquisition of ITsavvy will improve Xerox’s value proposition with clients, as well as the mix of revenue from growing businesses."
For the full financial year 2024, Xerox expects a revenue decline of 10% (prior year 5%-6% decline) consensus of $6.42 billion. The company projected a free cash flow guidance of $450 million– $500 million (prior $550 million–$600 million).
Xerox maintained an adjusted operating margin outlook of around 5.0% (prior $6.5% – 7.5%). Xerox Holdings stock plunged 43% year-to-date as the company missed the topline estimates for all three quarters of 2024 due to a decline in equipment sales revenue.
Xerox shares dived as low as USD$8.11 on the NASDAQ exchange on Friday Nov 1st but picked up a little to close at USD$8.27.
