Xerox Q2 Revenue Declines 10%, Cuts Annual Outlook, But CEO Anticipates Turnaround

Xerox Holdings Corp (NASDAQ: XRX) reported a fiscal second-quarter 2024 sales decline of 10.0% year-on-year to $1.58 billion, missing the analyst consensus estimate of $1.60 billion. The stock dropped after the print on Thursday.

Revenues declined 9.6% at constant currency. Adjusted EPS of $0.29 missed the analyst consensus estimate of $0.43. 

Equipment sales decreased by 15.2%, while post-sale revenue declined by 8.4%. 

Gross margin declined 100 basis points Y/Y to 33.0%. The equipment margin fell by 70 bps to 34.5%. The post-sale margin decreased by 110 bps to 32.5%.

The company reported an adjusted operating income of $85 million, compared to $107 million last year, and the margin declined 70 basis points to 5.4%.

Xerox held $485 million in cash and equivalents as of June 30, 2024. Operating cash flow for the quarter totaled $123 million, with a free cash flow of $115 million.

“The comprehensive and strategic operating model changes implemented in Q1 caused a short period of disruption but are delivering the intended improvements in financial results. Adjusted operating income margin, free cash flow and revenue trajectory improved sequentially in Q2. Momentum in orders, enhanced sales operations and new product initiatives are expected to drive a return to revenue growth in the second half of the year,” CEO Steve Bandrowczak said.

FY24 Outlook: The company expects revenue of $6.47 billion – $6.54 billion (prior $6.54 billion – $6.68 billion) vs. consensus of $6.45 billion. The company projected a free cash flow guidance of $550 million – $600 million (versus prior $600 million).

Xerox maintained an adjusted operating margin outlook of $6.5% – 7.5% (versus prior 7.5%).

In June, Citi initiated coverage on Xerox Holdings with a Sell rating and a price target of $11. The stock has lost 28% in the last 12 months.

Price Action: XRX shares traded lower by 8.15% at $10.82 at last check on Thursday.

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