Why is Xerox (XRX) down 3.1% since its last earnings report?

It has been about a month since Xerox Holdings Corporation (XRX) last reported earnings. Shares have lost about 3.1% in that time, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Xerox waiting for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the key drivers.

Xerox Skip First Quarter Earnings Estimates

photocopier reported dismal first-quarter 2024 results, with both earnings and revenue missing the Zacks Consensus Estimate.

First-quarter adjusted EPS of 6 cents missed the Zacks Consensus Estimate by 84.2% and declined more than 87.8% year-over-year. Total revenues of $1.5 billion missed the consensus estimate by 4.8% and were reported to be down 12.4% year-over-year. Revenues declined 13.2% on a constant currency (CC) basis.

Revenue details

Post-sale revenue was $1.2 billion, down 8.5% year-over-year on a reported basis and 9.3% on a constant currency basis, exceeding our estimate of $1.19 billion. The decline was primarily due to a reduction in non-strategic, low-margin paper and IT endpoint deployments, the effects of geographic simplification, the dissolution of Fuji Royal and the lack of PARC revenues.

Year-over-year hardware sales declined 25.8% and 26.3% cc to $290 million, lower than our estimate of $394.7 million. The decrease was due to the effect of reducing arrears and geographical simplifications from the previous year.

Print & Other segment revenues were $1.43 billion, down 12.6% year-over-year. Total revenue for Xerox Financial Services was $91 million, down 10.8% year-over-year.

Sales revenues totaled $523 million, down 20.6% year over year on a reported basis and 21.3% on a cc basis. Service, maintenance and rental revenues were $937 million, down 6.7% year over year on a reported basis and 7.4% on a cc basis. Financial revenues of USD 42 million decreased 19.2% year-over-year on a reported basis and 20.8% on a cc basis.

Operational efficiency

Adjusted operating income was $33 million, down 72% year-over-year. Adjusted operating margin was 2.2%, up 470 basis points year-over-year.

Kay balance sheet and cash flow data

Xerox ended the quarter with a cash and cash equivalent balance of $685 billion, compared to $519 million at the end of the prior quarter. The company’s cash outflow from operations and free cash flow for the quarter were $79 million and $89 million, respectively.

Guidelines 2024

Xerox expects 2024 revenue to decline 3% to 5% on a constant currency basis, adjusted operating margin to be at least 7.5% and free cash flow to be at least $600 million.

How have estimates changed since then?

It turns out that new estimates have been trending downward over the past month.

As a result of these changes, the consensus estimate moved by -7.14%.

VGM results

At this point, Xerox’s average Growth Score is C, although it lags slightly behind its Momentum Score of D. However, the stock is rated an A on the value side, putting it in the top quintile of this investment strategy.

Overall, the stock has a composite VGM score of B. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. It’s no surprise that Xerox has a Zacks Rank #5 (Strong Sales). We expect a below-average rate of return on stocks in the coming months.

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