Xerox Hiccups with a 17% Q1 Earnings Decline

“Revenue and cash flow in line” says CEO

Xerox Corporation announced its first quarter 2017 earnings on April 25, 2017 (see Figure 1, Figure 2, and Figure 3). The company provided different revenue splits so some numbers are estimated for past quarters.

  • Xerox total Q1 revenue of $2.45 billion (B) from continuing operations, down 6.2% or 4.3% (CC) year-to-year (Y/Y)
  • Equipment Sales were $502 million (M) down 7.4% or 5.7% (CC) Y/Y
  • Post Sale revenue was $1.95B down 5.8% or 3.9% (CC) Y/Y
  • Xerox worldwide employment was approximately 37,200 includes a 400-headcount reduction since 2016 year-end
  • 15% increase in entry color MFPs reflecting demand for recently launched products

Our View

Jeff Jacobson, Xerox Chief Executive Officer, and Bill Osburn, Xerox Chief Financial Officer, held Xerox’s Q1 2017 earnings call today.

In the first quarter Xerox entered a strategic partnership with Electronics for Imaging (EFI) to launch the next gen digital front end (DFE) that will drive Xerox’s production presses. Xerox also announced its largest product launch in its history that included 29 new A3 and A4 products that will be launched beginning primarily in Q2. This was probably the main deterrent in Xerox exceeding its guidance – it appeared with the impending announcement that customers held off purchasing or financing current products when the newer products would be available shortly. Several of the financial analysts implied this in their questions. With some of the new products becoming available in Q2, no guidance was given for Q2 except for FY 2017 at $.80 – $.88 adjusted EPS.

One of the bright spots in Q1 was the installs for entry A4 MFDs. Color was up 15% Y/Y and Black/White was up 1% Y/Y. All other installs were flat or negative including mid-range and high-end. It is interesting that Xerox is looking to grow its A4 product market share and that HP is looking to grow its A3 product market share. As Xerox explained it must make an “investment” in A4 because an OEM will lose money on the hardware and make money on the post-sale. It appears that having a presence in A4 allows Xerox to gain share while HP having an increased presence in A3 will allow it to reap the benefits of its PageWide and Samsung products.

We will see how Xerox’s supply chain does in Q2 to see if the company’s largest announcement will really have an effect on its revenue and income.

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