Xerox Reports Second-Quarter Results, Addresses Fuji Xerox Partnership

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Stating that an auction process for Xerox is no longer planned, new Xerox CEO John Visentin reported on financial results for Xerox’s second quarter that ended on June 30, 2018.

The company confirmed that it is not conducted an auction process, with Visentin stating, “While there has been much speculation about Xerox, I want to be clear. My mission is to do what is right for Xerox. Our focus is on leveraging the assets and capabilities we have today to create a sustainable company that provides a compelling value proposition for customers and partners.” In a May statement, Visentin had said a public auction of Xerox might be in the works, while activist Xerox investor Darwin Deason has also said that an auction might be in the works.

For the second quarter, Xerox reported that net income declined to $112 million, or 42 cents per share, with profits hurt by transaction costs of $58 million. Other results include:

  • GAAP earnings per share (EPS) from continuing operations of 42 cents, down 21 cents compared to the same period in 2017, primarily due to transaction costs of $58 million or 17 cents. Adjusted EPS of 80 cents, a decrease of 6 cents year over year.
  • Total Revenue: $2,510 million, down 2.2 percent year-over-year or 4.0 percent in constant currency.
  • Equipment Sale Revenue: $561 million, up 0.9 percent or down 0.6 percent in constant currency.
  • Post Sale Revenue: $1,949 million, down 3.1 percent or 5.0 percent in constant currency.
  • Adjusted Operating Margin: Adjusted operating margin of 11.9 percent, down 1.3 points year-over-year.
  • Cash Balance: $1,263 million at the end of the second quarter.
  •  Cash Flow: Operating cash flow of $235 million in the second quarter and $451 million for the first half.
  • Dividend: Returned $68 million to shareholders.

In a presentation discussing second-quarter results, CEO Visentin and CFO Bill Osbourn also said while 59-percent of Xerox’s current products comes from its Fuji Xerox Technology Agreement with Fujifilm, it has product-specific agreements that protect the continuity of its product supply. Not renewing the TA doesn’t dissolve the joint venture, – however, the Xerox stated it  would give Xerox the opportunity to sell in Asia, and that Xerox retains the worldwide rights to all joint intellectual property. The company had previously said that it might sever its 56-year old joint venture with Fujifilm, Fuji Xerox, after it had terminated a complicated $6.1 billion deal under which Fujifilm would purchase a majority interested in Xerox, with Xerox being merged with Fuji Xerox.

Visentin said “There  is significant opportunity to improve the competitive dynamics within our supplier base. We have recently been successful in partnering with a new supplier for a next generation product. Fuji Xerox remains a partner but they need to earn our business. We have time to determine the right suppliers for future products and make any transitions.”

Visentin also said today that Xerox’s strategy would be to “transform the company with an emphasis on commercializing innovation, optimizing operations to better serve customers and partners, and a heightened commitment to shareholder returns.

“It’s clear after two months as CEO of this iconic brand that we can return Xerox to the forefront as a leading tech company,” said Visentin. “We currently have software, services and printing technologies, along with a pipeline of innovations, which can disrupt the marketplace and bring increased value to those we serve.”

“Our second-quarter results demonstrate the benefit of having a business model underpinned by annuity cash flow. However, it also highlights the challenge of improving revenue and flowing cost savings to the bottom line,” he noted.

“Our success will depend on operating with a relentless focus on optimization. Actions include improving the effectiveness and efficiency of our supply chain and go-to-market channels. Equally important is ensuring we provide a great experience for our customers and address their evolving business needs.”

As part of this, Xerox board of directors authorized a $1 billion share repurchase program, with Xerox set to repurchase up to $500 million in Xerox shares in 2018.

“This positive step forward is a strong endorsement of the company and represents an immediate action to deliver value to our investors,” said Visentin.

Second-Quarter Year-over-Year Installations

  • Entry-level A4 MFPs: color units up 21 percent, B&W up 21 percent
  • Mid-Range color units: up 29 percent, B&W up 13 percent
  • High-End color: down 9 percent, B&W down 12 percent

Outlook

Xerox stated it will focus on driving strong cash generation and continues to expect full-year operating cash flow of $900 to $1,100 million and free cash flow of $750 to $950 million.

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