Revenues Slow in Xerox’s Second Quarter, but Net Income Up

Xerox released results for its second quarter. and although revenue was $2.57 billion, down 8.1 percent versus first-quarter 2016, net income was up at $166 million, versus $158 million for first-quarter 2016.

Second-quarter earnings per share (EPS) were 63 cents, reflecting, stated Xerox, its one-for-four reverse stock split on June 14, 2017. Adjusted EPS was 87 cents, which excludes 24 cents per share of after-tax costs related to restructuring and certain retirement related costs.

Xerox affirmed its full-year revenue, cash flow and operating margin guidance. Financial results for the first quarter were revised to reflect the equity-income impact from the Fujifilm investigation of Fuji Xerox accounting practices.

“We are pleased with the strong operating margins and cash flow we delivered, as well as the continued progress on our Strategic Transformation initiatives,” said Jeff Jacobson, Xerox chief executive officer. “This resulted in solid operating results despite revenue declines, which were driven by lower equipment sales as we transition to the recently launched ConnectKey portfolio.” Jacobson added, “The new product line-up has been met with enthusiasm by customers, partners and industry experts, fueling our confidence in improving revenue trends later this year and into next.”

Office-Equipment Sales

Equipment sales revenue decreased 16.0 percent as compared to second quarter 2016, with a 1.4-percentage point negative impact from currency. Revenue declined across all product areas and was impacted by price declines of approximately 5 percent.

The decline in mid-range sales was in part due to the anticipated impact of the timing of new products further exacerbated by a slower roll-out associated with a large portfolio transition, and ongoing black-and-white revenue declines that reflected overall market decline trends; in addition, the second quarter of 2016 benefited from an earlier roll-out of the i-series product
portfolio refresh.

The decline in high-end sales reflected primarily lower revenues from Xerox black-and-white systems, consistent with overall market decline trends, along with the impact of elevated partner sales in the
prior year associated with drupa, and timing and delays related to the recent launch of the Versant entry production color system; these declines were partially mitigated by higher sales of our continuous feed inkjet systems.

The decline in entry sales reflects lower OEM activity, and an unfavorable mix caused by higher install activity associated with new Xerox  ConnectKey products that are at the lower end of the portfolio, as well as low-end printers in developing markets.

Xerox also reported:

Entry-level installations:

  • 24 percent increase in color MFP installations, reflecting demand for recently launched products in this space.
  • 10 percent increase in installations of black-and-white MFPs, driven largely by higher activity for low-end printers in developing markets.

Mid-range installations:

  • 15 percent decrease in mid-range color installations, reflecting the transition to the new product portfolio partly offset by growth in developing markets.
  • 14 percent decrease in mid-range black-and-white installations, reflecting overall market decline as well as the impact of transitioning to the new product portfolio partly offset by growth in developing markets.

High-end installations:

  •  9 percent decrease in high-end color system installations, as growth from continuous feed color and the recently launched Versant products was offset by a decline in iGen and older entry-production products.
  • 34 percent decrease in high-end black-and-white systems installations reflects overall market decline and trends, and higher declines in North America.

Fujifilm Investigation

Financial results for the first quarter were revised to reflect the equity-income impact from the Fujifilm investigation of Fuji Xerox accounting practices.

Fuji Xerox is a joint venture between Xerox and Fujifilm Holdings Corporation, in which Xerox holds a non-controlling 25 percent equity interest. During the second quarter, a review by an independent investigation committee of the appropriateness of the accounting practices at Fuji Xerox related to the recovery of receivables associated with certain bundled leasing transactions in Fuji Xerox’s New Zealand and Australian subsidiaries was completed. The review identified that total adjustments of approximately JPY 40 billion(approximately $360 million.

Xerox determined that its share of that amount was approximately $90 million. Although Xerox determined that the impact to its equity income was immaterial to its previously issued financial statements, the cumulative correction would have a material effect on the company’s current year consolidated financial statements. Accordingly, Xerox will revise its previously issued annual and interim consolidated financial statements for 2014, 2015 and 2016 and the first quarter of 2017 the next time they are filed. Prior period amounts throughout this release have been adjusted to incorporate the revised amounts, where applicable.

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