Xerox Reports Latest Financial Results; Moving Accounts to Global Imaging (XBS)

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Xerox today announced results for its fourth-quarter and for its full-year 2018. Net income for the fourth quarter  was $137 million, compared to a loss of $190 million for fourth-quarter 2017. Fourth-quarter EPS was 56 cents per share, an increase of $1.34 versus fourth-quarter 2017. However, revenue for the fourth quarter was $2.53 billion, a decline of 7.8 percent year-over-year.

Fourth-quarter and full-year cost cutting at Xerox has resulted in some positive results however: operating cash flow for the fourth quarter was $415 million, an increase of $564 million year-over-year, or $83 million year-over-year on an adjusted basis. Free cash flow for the quarter was $398 million, an increase of $101 million year-over-year.

For the full 2018 year, Xerox posted adjusted EPS of $3.46, an increase of $0.01 year-over-year, and revenue of 9.83 billion, a decrease of 4.2 percent year-over-year. Operating cash flow for the full year was  $1.14 billion, an increase of $1.32 billion year-over-year, or $168 million year-over-year on an adjusted basis. Free cash flow was $1.05 billion, an increase of $183 million year-over-year.

Xerox Vice Chairman and CEO John Visentin commented: “Our Q4 results reflect continued progress on our strategic initiatives to optimize our operations, re-energize our innovation engine and increase shareholder returns,. We remain focused on removing complexity in the way we work, organizing more effectively, and creating a better customer experience, and we are seeing those efforts reflected in this quarter’s results.

“We are well positioned as we enter 2019 to continue to build on all our initiatives to deliver greater shareholder value. We look forward to sharing the details around our strategy and three-year financial expectations at our investor day on February 5.”

Highlights from Xerox’s fourth quarter included:

  • To drive revenue through expansion of its  U.S. SMB business, Xerox is  transitioning over 28,000 of its small- and mid-size government, healthcare, education, and graphic-communications accounts to Xerox Business Solutions (formerly known as Global Imaging Systems). It says Xerox Business Solutions (XBS) will provide these customers a “high-touch, locally accessible model that aligns to the route to market best suited to deliver an exceptional experience for them.”
  • Over the last two quarters, Xerox says it’s focused on creating a simpler, more agile and effective organization through Project Own It, a company-wide program. During the fourth quarter, Xerox ramped up implementation of the program, which contributed to this quarter’s operating margin expansion.
  • Xerox recently renewed a long-standing relationship with Office Depot, supplying more than 8,000 devices across Office Depot/OfficeMax’s retail stores and regional offsite production facilities. The contract covers print technology in approximately 1,400 locations, making walk-up customer use more efficient, and providing high-quality color output for promotional materials, posters, invitations and other applications.

The Xerox board also approved some $1.0 billion in Xerox share repurchases; the company expects at least $300 million of share repurchases in 2019.

Growth in A4 Entry-Level Installations

During the fourth quarter, color and B&W A4 entry-level installations were up 11 and 9 percent, respectively; color and B&W mid-range installations were up 3 and 1 percent, respectively; and high-end color and B&W installations were down 12 and 34 percent, respectively.

Xerox Managed Document Services made up 35 percent of  total revenue, and were down 1.7 percent.

Total equipment revenue for the fourth quarter was $629 million, down 9.5 percent year-over-year. Additionally:

  • Entry-level equipment revenue was $66 million, down 2.9 percent year-over-year.
  • Mid-range equipment revenue was $418 million, down 2.3 percent year-over-year.
  • High-end equipment revenue was $138 million, down 16.9 percent year-over-year.

Post-sale revenues were also also said to be lower, down 5.5 percent to $1.9 billion. Xerox stated that this was due to lower supplies sales in North America and Europe, which, however, was somewhat offset by higher supplies and paper sales in developing economies. Lower revenue was also said to be due to lower page volumes and a smaller installed base.

For the entire fiscal year, sales were down 4.9 percent to $9.83 billion.

2019 Forecast

The company expects continued progress on its strategic initiatives in 2019, as projected in its financial guidance:

  • Operating cash flow between $1.15 and $1.25 billion and free cash flow between $1.0 and $1.1 billion.
  • Revenue decline of approximately 5 percent.
  • Adjusted operating margin of 12.6 percent to 13.1 percent, an expansion of between 100 and 150
    basis points year-over-year. In 2019, Xerox stated it’s revising its  definition of adjusted operating margin to
    exclude equity income.
  • EPS between $2.60 and $2.70, and adjusted EPS between $3.70 and $3.80.
  • Operating cash flow of $1.15 to $1.25 billion and free cash flow of $1.0 to $1.1 billion.
  • 2019 full year guidance also includes expanding adjusted operating margin between 100 and 150 basis points year-over-year, as well as earnings growth that results in GAAP EPS of $2.60 to $2.70 and adjusted EPS of $3.70 to $3.80.

Xerox plans to update investors on its strategy and longer-term financial expectations during its investor day on February 5, 2019.

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