Xerox Holdings Corp (NASDAQ: XRX) reported a disappointing fiscal third-quarter 2024, with sales dropping 7.5% year-on-year to $1.53 billion, missing the analyst consensus of $1.63 billion. This marks the company’s seventh consecutive quarter of failing to meet revenue expectations. Revenue declined 7.3% at constant currency.
The company’s adjusted earnings per share (EPS) of $0.25 also fell short of the analyst consensus estimate of $0.51. Following the release of these disappointing results, XRX stock took a hit on Tuesday.
The decline in revenue was primarily driven by a 12.2% decrease in equipment sales, while post-sale revenue saw a smaller decline of 6.1%. Despite the revenue slump, Xerox’s gross margin remained steady year-over-year at 32.4%. However, the equipment margin fell by 250 basis points to 28.5%, while the post-sale margin increased by 60 basis points to 33.5%.
Despite the challenges, the company reported an adjusted operating income of $80 million, up from $68 million last year. The operating margin also saw growth, expanding by 110 basis points to 5.2%. Xerox held $521 million in cash and equivalents as of September 30, 2024. Operating cash flow for the quarter totaled $116 million, with a free cash flow of $107 million.
“While equipment revenue fell short of expectations, we continue to see steady progress from Reinvention initiatives taken to date. Adjusted operating income and margin grew year-over-year, and the pending acquisition of ITsavvy will improve Xerox’s value proposition with clients, as well as the mix of revenue from growing businesses,” said Steve Bandrowczak, chief executive officer at Xerox.
Looking ahead, Xerox expects a revenue decline of 10% for the full fiscal year 2024, compared to the previous forecast of a 5%-6% decline. The consensus estimate for revenue is $6.42 billion. The company also projected a free cash flow guidance of $450 million– $500 million, down from the previous range of $550 million–$600 million. Xerox maintained an adjusted operating margin outlook of around 5.0%, down from the previous range of 6.5% – 7.5%.
Xerox Holdings stock has seen a significant decline of 43% year-to-date, as the company has consistently missed topline estimates for all three quarters of 2024 due to the decline in equipment sales revenue. The stock is down 16.70% at $8.56 in premarket trading on Tuesday.
The acquisition of ITsavvy, a provider of IT infrastructure solutions, is expected to be a positive development for Xerox. This acquisition will expand Xerox’s footprint in the IT infrastructure market, offering a broader range of solutions to its clients and potentially boosting revenue from growing businesses.
Despite the current challenges, Xerox remains focused on its Reinvention initiatives, aiming to adapt to changing market dynamics and enhance its value proposition. The company’s performance in the coming quarters will be closely watched as it navigates these challenges and pursues growth opportunities.
