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Xerox Beats on Q4 Earnings, Revenues Dip Y/Y

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Xerox Corporation (XRX - Free Report) reported net income (from continuing operations) of $305 million or 26 cents per share in fourth quarter of 2014 compared with $297 million or 23 cents a share in the year-ago quarter. The year-over-year increase in earnings per share was due to lower operating expenses.

For full year 2014, the company reported net income (from continuing operations) of $1,084 million or 90 cents per share compared with $1,139 million or 89 cents a share in 2013.

Excluding non-recurring items, adjusted earnings (from continuing operations) for the reported quarter were $357 million or 31 cents per share versus $344 million or 27 cents per share in the year-earlier quarter. Adjusted earnings for the reported quarter exceeded the Zacks Consensus Estimate of 28 cents.
 

 

Excluding non-recurring items, adjusted earnings (from continuing operations) for full year 2014 were $1,280 million or $1.07 per share versus $1,328 million or $1.04 per share in 2013. Adjusted earnings for the full year missed the Zacks Consensus Estimate by 1 cent.

Total revenues in the reported quarter decreased 3% year over year to $5,033 million. Quarterly revenues beat the Zacks Consensus Estimate of $5,015 million. The decrease in revenues was driven by lower sales in the Document Technology segment. Operating margin for the reported quarter was up 1.0 % year over year to 10.4%, while gross margin was 32.1%.

Total revenues for full year 2014 decreased 2% year over year to $19,540 million.

Segment Performance

Revenues from the Services segment, which include Document Outsourcing (DO) and Business Process Outsourcing (BPO) increased 1% year over year to $2,725 million in the reported quarter (54% of total revenue). BPO revenues increased due to growth from acquisitions along with organic growth in several lines of business. Revenues from DO decreased year over year, as growth in the partner print services offerings was offset by decline in Europe and other markets

Segment margin increased 0.1% year over year to 9.8%. Total Services sales pipeline declined 5% year over year. The pipeline has been adjusted to remove the ITO business and reflect the realignment of its services go-to-market resources into industry focused business groups. Total contract value of service signings aggregated $3.2 billion with BPO and DO accounting for $2.2 billion and $1.0 billion, respectively. Total contract signings increased 20% in the reported quarter driven by renewals.

Revenues in the Document Technology segment dipped 8% year over year to $2,159 million (43% of total revenue) due to a fall in equipment sales and annuity revenues.

Segment margin increased 2.8% year over year in the reported quarter to 14.4% owing to benefits from cost initiatives, lower pension expense and positive effects from restructuring. The revenue mix for the segment comprised 56% mid-range, 25% high-end and 19% for entry-level products.

Revenues in the Other segment decreased 12% to $149 million (3% of total revenue) due to lower licensing and patent sale revenues. Segment loss of $65 million increased $31 million from the year-ago quarter, primarily driven by lower licensing and patent sale revenues and lower gains on sales of businesses and asset.

Financial Position

Xerox had cash and cash equivalents of $1,411 million as of Dec 31, 2014, compared with $1,764 million as of Dec 31, 2013. Long-term debt at the end of the reported quarter stood at $6,314 million versus $6,904 million as of Dec 31, 2013.

Net cash provided by operating activities for the year ended Dec 31, 2014 stood at $2,063 million versus $2,375 million in the year-ago period. The company repurchased $1.07 billion worth of shares for full year 2014.

Xerox increased the quarterly cash dividend by 12% to 7 cents per share, with the dividend payable on Apr 30, 2015.

Other

Recently, Xerox entered into an agreement to sell its Information Technology Outsourcing (ITO) business to Atos S.E. (Atos) for $1.05 billion to focus on building up faster-growing units, business process outsourcing (BPO) and document outsourcing. The transaction is expected to close in the first half of 2015.

Outlook

For first quarter 2015, Xerox expects GAAP earnings between 16 cents to 18 cents per share, while adjusted earnings are expected to be within 20 cents to 22 cents.

For full-year 2015, Xerox expects adjusted earnings to be in the range of $1.00 to $1.06 per share. GAAP earnings from continuing operations are expected in the range of 83 cents to 89 cents per share.

Xerox expects cash flow from operations to be in the range of $1.7 to $1.9 billion and free cash flow in the range of $1.3 to $1.5 billion, reflecting a negative $200 million impact to cash flow from operations and a negative $100 million impact to free cash flow. Xerox expects to offset the impact from the ITO sale on free cash flow by 2016.

Xerox currently has a Zacks Rank #4 (Sell). Other stocks that look promising and are worth a look include Stantec Inc. (STN - Free Report) carrying a Zacks Rank #1 (Strong Buy), CoreLogic, Inc. (CLGX - Free Report) and Corporate Executive Board Co. , both carrying a Zacks Rank #2 (Buy).




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