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Xerox (XRX) Down 0.9% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Xerox (XRX). Shares have lost about 0.9% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Xerox due 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 important catalysts.

Xerox Beats Earnings Estimates in Q1

Xerox reported mixed first-quarter 2019 results, with earnings beating the Zacks Consensus Estimate but revenues missing the same.

Adjusted earnings per share of 91 cents beat the consensus mark by 6 cents and increased 23 cents from the year-ago quarter’s tally. Total revenues of $2.21 billion missed the consensus mark by $115 million. The top line fell 9.4% year over year on a reported basis and 7% on a constant-currency (cc) basis.

Revenues by Segment

Equipment sales totaled $448 million, which declined 10.2% year over year on a reported basis and 7.6% on a constant-currency basis. The segment contributed 20% to total revenues. Post sale revenues of $1.76 billion declined 9.2% year over year on a reported basis and 6.8% at cc. The segment contributed 80% to total revenues.

Revenues by Region

Revenues from Americas came in at $1.41 billion, down 8.1% year over year on a reported basis and 7.5% at cc. The region contributed 64% to total revenues. EMEA revenues amounted to $712 million, down 10.4% year over year on a reported basis and 4.3% at cc. The region contributed 32% to total revenues. Revenues from Other region totaled $84 million, down 20% year over year on a reported basis as well as at cc. The region contributed 4% to total revenues. 

Operating Results

Gross profit of $889 million fell 8.4% from the prior-year quarter’s figure. Total gross margin of 40.3% declined 50 basis points (bps) year over year. While equipment gross margin surged 310 bps year over year to 35.7%, post sale gross margin contracted 20 bps to 41.5%.

Adjusted operating profit of $249 million was up 2.9% year over year. Adjusted operating margin improved 140 bps year over year to 11.3%. Selling, administrative and general expenses, as a percentage of revenues, declined to 24.8% from 25.8% in the year-ago quarter. Research, development and engineering expenses, as a percentage of revenues, increased to 4.2% from 4.1% in the prior-year quarter.

Balance Sheet and Cash Flow

Xerox exited the first quarter with cash, cash equivalents and restricted cash balance of $786 billion compared with $1.15 billion at the end of the previous quarter. Long-term debt was $4.27 billion, flat with the prior quarter tally. The company generated $226 million of cash from operating activities and spent $15 million on capex in the quarter. Free cash flow was $211 million.

2019 Guidance

Xerox raised its 2019 adjusted EPS guidance. It now expects adjusted EPS in the range of $3.80 to $3.95 compared with the previous expectation of $3.70 to $3. 80. Revenues are expected to decline roughly 5% at cc. The company expects operating cash flow in the range of $1.15-$1.25 billion and free cash flow in the range of $1.0-$1.1 billion. Adjusted operating margin is anticipated between 12.6% and 13.1%.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months.

VGM Scores

At this time, Xerox has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Xerox has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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