After posting declining sales, Xerox announces reinvention plan
Xerox Holdings Corp. announced its 2023 third-quarter results included revenue of $1.65 billion, down 5.7 percent, but GAAP net income of $49 million, or $0.28 per share, up $432 million or $2.76 per share, year-over-year, respectively. The adjusted net income of $77 million, or $0.46 per share, up $44 million or $0.27 per share, year-over-year, respectively.
“Growth in adjusted profit, EPS and free cash flow reflects solid execution of our strategic priorities amid a challenging macro backdrop,” said Steve Bandrowczak, CEO at Xerox. “As we continue simplifying and focusing our operations, Reinvention will reposition our business to enable sustainable profit improvement and revenue growth through the expansion of services that best serve our clients’ needs.”
During the earnings call, Bandrowczak expanded on what the “Reinvention” program would entail:
“Reinvention is a comprehensive and operational simplification of our business resulting in a strategic repositioning of the company to take advantage of favorable macro trends, including the digitalization of document workflows associated with the power of AI, while managing the secular headwinds associated with traditional print. Reinvention does not mean we are abandoning our core print business, which we expect to continue generating strong profits and cash flow for many years,” he said. “Reinvention means building new capabilities on top of a solid print core. Management and the Board believe the most direct and probable path to sustainable growth in profit, free cash flow, and shareholder returns requires a structural redesign of our operations, combined with selected reinvestment in capabilities essential to addressing clients’ most challenging workplace productivity needs.
“The workplace has evolved, and Xerox is evolving with it to ensure we power the productive workplace of today and tomorrow. The ultimate goal of Reinvention is to facilitate Xerox’s shift from a leader in print technology to an unparalleled technology and service provider. There are 3 primary components of the Reinvention. First is a geographic optimization, which entails taking a more selective approach to direct operations in certain markets and, when appropriate, shifting to a partner-led distribution model. This optimization of our go-to-market approach is expected to result in lower revenue initially, but provide a stronger and more profitable foundation from which to grow revenue going forward.
“Second is the optimization of our product offering and pricing models. Through the Reinvention, we will streamline our product offerings to maximize profitability and allow greater internal focus on the delivery of products and services that address the evolving needs of a hybrid workplace. We will introduce a more consumer-like touchless experience to improve client satisfaction, and we’ll simplify our pricing models to deliver faster and more effective decisioning, when pursuing new and renewal business. The optimization of our geographic footprint, product offerings and pricing models will in turn enable an end-to-end organizational and structural simplification of our business, unlocking the third component of the Reinvention: operating efficiencies across IT, business support functions and the supply chain.
“While the Reinvention is expected to result in a more profitable and streamlined organization, it is not simply a cost-cutting program. Equally important, if not more so, is Xerox’ ability to transition over time to become a services-led, software-enabled provider of advanced workplace solutions. A transition of this magnitude requires select investment in organic and inorganic growth opportunities. These investments are expected to be self-funded and will target opportunities to grow our share of wallet in print and print services as well as high-growth adjacent markets, where we have a clear path to win, such as managed IT services for small and midsized clients and digital services. In total, Reinvention is expected to generate a substantial improvement in operating income and income margin over the next few years.”
Third-Quarter Key Financial Results
|
(in millions, except per share data) |
Q3 2023 |
Q3 2022 |
B/(W) YOY |
% Change B/(W) YOY |
|
Revenue |
$1,652 |
$1,751 |
$(99) |
(5.7)% AC |
|
Gross Margin |
32.4% |
31.8% |
60 bps |
|
|
RD&E % |
3.1% |
4.2% |
110 bps |
|
|
SAG % |
25.2% |
23.9% |
(130) bps |
|
|
Pre-Tax Income (Loss)(2) |
$63 |
$(380) |
$443 |
NM |
|
Pre-Tax Income (Loss) Margin(2) |
3.8% |
(21.7)% |
NM |
|
|
Operating Income – Adjusted (1) |
$68 |
$65 |
$3 |
4.6% |
|
Operating Income Margin – Adjusted (1) |
4.1% |
3.7% |
40 bps |
|
|
GAAP Diluted Earnings (Loss) per Share(2) |
$0.28 |
$(2.48) |
$2.76 |
NM |
|
Diluted Earnings Per Share – Adjusted (1) |
$0.46 |
$0.19 |
$0.27 |
142% |
_____________
(1) Refer to the “Non-GAAP Financial Measures” section of this release for a discussion of these non-GAAP measures and their reconciliation to the reported GAAP measures.
(2) Third quarter 2022 pre-tax loss and EPS include a $412 million non-cash goodwill impairment charge ($395 million after-tax), or $2.54 per share.
Third-Quarter Segment Results
|
(in millions) |
Q3 2023 |
|
Q3 2022 |
|
B/(W) YOY |
|
% Change B/(W) YOY |
|
Revenue |
|
|
|
|
|
|
|
|
Print and Other |
$1,575 |
|
$1,676 |
|
$(101) |
|
(6.0)% |
|
Financing (FITTLE) |
98 |
|
98 |
|
— |
|
—% |
|
Intersegment Elimination (1) |
(21) |
|
(23) |
|
2 |
|
(8.7)% |
|
Total Revenue |
$1,652 |
|
$1,751 |
|
$(99) |
|
(5.7)% |
|
Profit |
|
|
|
|
|
|
|
|
Print and Other |
$64 |
|
$63 |
|
$1 |
|
1.6% |
|
Financing (FITTLE) |
4 |
|
2 |
|
2 |
|
100.0% |
|
Total Profit |
$68 |
|
$65 |
|
$3 |
|
4.6% |
_____________
(1) Reflects revenue, primarily commissions and other payments, made by the FITTLE segment to the Print and Other segment for the lease of Xerox equipment placements.