🌫️ Has Xerox Become A Pale Photocopy Of Itself?

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Xerox: Just A Photocopy?

Xerox Holdings Corp. (XRX) wants to build a more customer-centric business. It came to this conclusion after topline and bottom-line missed estimates for the recent quarter and slashed its revenue and free cash flow guidance for the year. The CEO, though, is optimistic that the company has enough and more to bounce back. Can Xerox manage to replicate the days of healthy growth?

Tug Of War

Xerox revolutionized information access by inventing the first commercial plain paper photocopy machine. The Xerox 914, which took over a decade to build, averaged 2K copies a day or 100x more than an average business copier of those times.

Activist investor Carl Icahn disclosed a stake in Xerox in November 2015 and called its shares undervalued. Few months later, under pressure from Icahn and other investors, Xerox announced that it would split into two companies – one with the legacy printing operations and the other with the Business Process Outsourcing unit.

Xerox and Icahn have been at loggerheads since the latter’s first public criticism of the management in December 2017.

In February 2018, Icahn and Darwin Deason, who held a 15% stake in the company, said that Xerox should sell itself to one of its rivals or a private equity investor. Both went on to say that shares of Xerox would be worth anywhere between $54 – $64 if its untapped intellectual property potential is realized.

After a US judge blocked a proposed deal between Xerox and Fujifilm, the Icahn-Deason duo planned on “seriously considering” an all-cash bid for Xerox at a minimum price of $40 per share. Eventually, in May 2018, Xerox scrapped a $6.1B deal to merge with Fujifilm and settled with the activist investor duo.

Unfortunately, Icahn’s belief of creating shareholder value has not fructified as envisaged. Since Icahn disclosed a stake in the company in 2015, its annual revenue has dropped from $11.5B to $7B in 2021. The company has also not delivered positive annual revenue growth since the stake disclosure.

Can You Photocopy Growth?

Last week, Xerox’s shares fell to a multi-decade low after the company missed estimates on the topline and bottom-line fronts for the third quarter and cut its annual revenue and free cash flow guidance.

Key Highlights From Q3:

  • Revenue: $1.75B Vs $1.77B expected
  • Earnings Per Share: $0.19 adjusted Vs $0.48 Year-on-Year

The company swung to a net loss of $383M during the quarter due to a pretax impairment charge of $412M. Ongoing supply-chain constraints, macroeconomic volatility, and high interest rates were behind the impairment charge. The management warned that recovery from the pandemic and supply-chain issues is turning out to be slower than initially expected.

For the full year, Xerox now expects $7B – $7.1B in revenue, compared to its earlier forecast of at least $7.1B. The cut in guidance is due to a stronger US Dollar and weakness in other European currencies like the Euro and the British Pound. It also cut its annual Free Cash Flow (FCF) guidance to just $125M from $400M earlier.

The reduction in FCF guidance is due to the higher-than-expected use of working capital which the management does not expect to impact earnings.

Despite the troubles, the one man who remains optimistic about Xerox’s prospects is CEO Steven Bandrowczak, who says that Xerox has the technology and capability to get back on the growth path. The new CEO said that he met dozens of clients and thousands of employees to understand their expectations from the company better.

Bandrowczak is also hopeful that the company’s operating margin will improve as supply-chains ease and price hikes take effect. The company’s near-term focus remains on executing its print and services strategy and improving operating efficiencies. He has cited strong demand for A3 devices and a healthy backlog for his belief in the company’s recovery prospects.

Xerox’s product backlog is currently at $429M, which may be 2.5% lower than the previous quarter, but it has left XBS branches and resellers struggling.

On the bright side, the company said it is confident of achieving its annual gross savings target of $450M from Project Own It, an enterprise-wide transformation aimed at reducing costs and freeing up capital for investments. It also continues to invest in FITTLE – the equipment financing business and the CareAR remote support business.

If someone from your older generation invested in Xerox in 1982, you’d still be making a loss, as shares are down 15% from those levels! Xerox has a lot of work to do if it needs to get its topline back to double-digits. However, for starters, the company will look to find ways to return to profitability. It remains to be seen how the remainder of the investors treat the company henceforth, which has only become a pale photocopy of itself!

Market Reaction
XRX ended at $14.40, down -1.84%.

Company Snapshot 📈

XRX $14.40, -0.27 (-1.84%).

Analyst Ratings (9 Analysts) BUY 00% HOLD 55%  SELL 45%


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Today’s Fun Fact

20% of copier repair request are a result of people sitting on them which puts too much pressure on the glass.


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