Xerox Reports 2Q 2016 Earnings

Xerox announced its second-quarter financial results and reiterated its full-year adjusted earnings guidance. The company reported significant progress on its plan to separate into two independent, Fortune 500-scale, publicly traded companies by year-end and on its strategic transformation program.
 
Second-quarter total revenue of $4.4 billion was down 4% year-over-year in actual and constant currency. Operating margin of 9.3% was up 0.8%age points from the same quarter a year ago. Gross margin and selling, administrative and general expenses were 31.2% and 19.7% of revenue, respectively.
 
“We delivered strong second-quarter results reflecting significant progress across our 2016 priorities: delivering on our financial commitments, executing our separation and driving our strategic transformation,” said Ursula Burns, Xerox chairman and CEO. “Our Services segment delivered substantial margin expansion and continued revenue growth in Document Outsourcing. Document Technology revenue declines moderated and margin improved driven by cost and productivity initiatives.”
 
Xerox delivered GAAP EPS from continuing operations of 15 cents in the second quarter of 2016. Adjusted EPS of 30 cents represented a 7 cent increase over the same period last year driven by a lower tax rate, fewer shares, and higher operating profits. Adjusted EPS excludes after-tax costs of $156 million or 15 cents per share related to the amortization of intangibles, restructuring and related costs, certain retirement related costs and separation costs.
 
Burns added, “We reached critical milestones in both the separation process and strategic transformation program during the second quarter. With each step forward, I become even more optimistic about the future of our businesses and more confident in our ability to meet our targets for the year while creating two companies with the strong strategic and financial foundations they will need to compete in their respective markets.”
 
The Services business delivered $2.5 billion in revenue, a decrease of 2% or 1% in constant currency. Services margin was 9.6%, up 2.4%age points year-over-year, driven by cost and productivity improvements including benefits from the company’s strategic transformation program.
 
The Document Technology business delivered total revenue of $1.8 billion, down 7% or 6% in constant currency. Document Technology margin was 12.6%, up 0.1%age point year-over-year and 2.4%age points sequentially, driven by cost and productivity improvements.
 
Xerox generated cash flow from operations of $177 million during the second quarter and ended the quarter with a cash balance of $1.2 billion.
 
During the second quarter, Xerox reported significant progress on its planned separation into two independent, publicly traded companies. The company announced that the new Business Process Outsourcing company will be named Conduent Incorporated and that Ashok Vemuri will become its CEO upon completion of the separation.
 
The Document Technology company will retain the Xerox Corporation name and Jeff Jacobson will serve as its chief executive officer. Ursula Burns will continue in her current role as chairman and chief executive officer of Xerox until the separation and serve as chairman of the Xerox board following the separation.
 
Xerox continues to anticipate full-year 2016 cash flow from operations of $950 million to $1.2 billion and free cash flow of $600 to $850 million.