Xerox ekes out a profit in Q2 as revenue falls 7%
NORWALK, Conn. – July 24, 2015 — Xerox announced today second-quarter 2015 adjusted earnings per share of 22 cents. Adjusted EPS excludes 5 cents related to the amortization of intangibles and 8 cents for the previously announced non-cash software impairment charges, resulting in GAAP EPS from continuing operations of 9 cents.
In the second quarter, total revenue of $4.6 billion was down 7 percent or 3 percent in constant currency. Annuity revenue was 84 percent of total revenue.
Revenue from the company’s Services business, which represented 56 percent of total revenue, was $2.6 billion, down 3 percent or up 1 percent in constant currency. Services margin was 7.5 percent, down 1 percentage point.
Revenue from the company’s Document Technology business was $1.9 billion, down 12 percent or 7 percent in constant currency. Document Technology margin was 12.1 percent, down 2.3 percentage points.
Second-quarter operating margin of 8.2 percent was down 1.6 percentage points from the same quarter a year ago. Gross margin was 31.1 percent, and selling, administrative and general expenses were 19.7 percent of revenue.
Xerox generated $349 million in cash flow from operations during the second quarter, ending the quarter with a cash balance of $1.6 billion. The company repurchased $395 million in stock in the quarter, bringing the total to $611 million in the first-half of 2015.
“We delivered adjusted earnings in line with our guidance, met our Services and Document Technology margin expectations and delivered solid operating cash flow of $349 million in the quarter,” said Ursula Burns, Xerox chairman and chief executive officer. “We are intensely focused on improving our Services margin and are implementing restructuring actions and prioritizing investments to accelerate benefits from our new operating model.”
Xerox expects third-quarter 2015 GAAP earnings of 17 to 19 cents per share. Third-quarter adjusted EPS is expected to be 22 to 24 cents per share.
For full-year 2015, Xerox expects GAAP earnings of 69 to 75 cents per share and adjusted EPS at the lower end of the 95 cents to $1.01 per share range.
Xerox continues to expect full-year 2015 cash flow from operations of $1.7 to $1.9 billion and free cash flow from operations of $1.3 to $1.5 billion.
The company is adjusting its 2015 capital allocation plans, increasing share repurchases by $300 million to $1.3 billion and reducing acquisition investments.
On December 18, 2014, Xerox Corporation announced that it had entered into an agreement to sell its Information Technology Outsourcing (ITO) business to Atos S.E. (Atos). As a result of this agreement, Xerox began reporting the ITO business as a Discontinued Operation. Prior period results have been revised to reflect this change. The sale was completed on June 30, 2015. Refer to the “Discontinued Operations” section for further details.
Second quarter 2015 total revenues decreased 7% as compared to second quarter 2014, with a 4-percentage point negative impact from currency. The 4-percentage point negative impact from currency reflects the significant weakening of our major foreign currencies against the U.S. Dollar as compared to the prior year. On a revenue weighted basis, our major European currencies and the Canadian dollar were approximately 18% weaker against the U.S. dollar as compared to the prior year. Revenues from these major foreign currencies comprise approximately 25% of our total consolidated revenues, while overall non-U.S. revenues represent approximately one third of the total. Second quarter 2015 total revenues reflect the following:
Annuity revenue decreased 7% as compared to second quarter 2014, with a 4-percentage point negative impact from currency. Annuity revenue is comprised of the following:
- Outsourcing, maintenance and rentals revenue includes outsourcing revenue within the Services segment, and maintenance revenue (including bundled supplies) and rental revenue, primarily within the Document Technology segment. The decrease of 6% was primarily due to a 4-percentage point negative impact from currency and a decline in the Document Technology segment.
- Supplies, paper and other sales includes unbundled supplies and other sales, primarily within the Document Technology segment. The decrease of 10% was primarily due to a 2-percentage point negative impact from currency and reduced supplies demand mainly due to lower equipment sales in prior periods, continued weakness in developing markets and lower OEM sales.
- Financing revenue is generated from financed equipment sale transactions primarily within the Document Technology segment. The decrease of 11% reflects a 6-percentage point negative impact from currency and a declining finance receivables balance due to lower prior period equipment sales.
Equipment sales revenue is reported primarily within our Document Technology segment and the Document Outsourcing (DO) business within our Services segment. Equipment sales revenue decreased 8% as compared to second quarter 2014, with a 5-percentage point negative impact from currency. The decline reflects lower entry product sales, particularly in Eurasia and other developing market countries, and overall price declines that continue to be within our historical range of 5% to 10%, partially offset by increased DO and high-end product sales.