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Xerox (XRX) Up 4.5% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Xerox Corporation (XRX - Free Report) . Shares have added about 4.5% in that time frame, underperforming the market.

Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Xerox Q4 Earnings in Sync, Provides 2017 Guidance

Xerox reported relatively modest fourth-quarter 2016 results with adjusted earnings of $260 million or $0.25 per share compared with $285 million or $0.27 per share in the year-ago quarter. The year-over-year decrease in adjusted earnings was primarily due to lower revenues. The adjusted earnings were in line with the Zacks Consensus Estimate.

GAAP income (from continuing operations) for the reported quarter was $181 million or $0.17 per share compared with $256 million or $0.24 per share in the year-ago quarter.

Total revenue for the fourth quarter was $2,734 million compared with $2,946 million in the year-earlier quarter. The year-over-year decrease was attributable to decline in both its operating segments.

For full-year 2016, the company reported revenues of $10,771 million compared with $11,465 million in 2015. GAAP net income from continuing operations were $616 million or $0.58 per share compared with $848 million or $0.77 per share in 2015.                        

Segmental Performance

Revenues from the Services segment, which include Document Outsourcing and certain other services businesses that were transferred from the BPO business to Xerox prior to the separation, were down 3.9% year over year to $894 million (33% of total revenues) in the reported quarter.

Revenues in the Document Technology segment declined 9.9% year over year to $1,693 million due to weak sales and an adverse currency impact. Segment margin remained strong at 14.6%.

Restructuring Update

Xerox completed the separation of its business process services company, now an independent company named Conduent Incorporated (CNDT).

Net restructuring and asset impairment charges of $76 million for the quarter included $57 million of severance costs related to headcount reduction of roughly 800 employees worldwide and lease cancellation charges of $26 million, primarily related to early termination of the lease for the company’s corporate airplane as a result of the elimination of its corporate aviation department. These expenses were partly offset by $7 million of net reversals for changes in estimated reserves from prior period initiatives.

As of Dec 31, 2016, the restructuring reserve balance for all programs were $127 million, of which $121 million is expected to be spent over the next one year.

During 2017, the company expects to incur additional restructuring charges of approximately $225 million. Roughly $125 million of the full year charges are expected to be recognized in the first quarter.

Financial Position

As of Dec 31, 2016, Xerox had cash and cash equivalents of $2,223 million compared with $1,228 million on Dec 31, 2015. Long-term debt was $5,305 million compared with $6,317 million on Dec 31, 2015. Net cash provided by operating activities for 2016 was $1,018 million compared with $1,078 million in the year-ago period.

Guidance

Xerox offered guidance for full-year 2017. It expects GAAP earnings to be in the range $0.44–$0.52 per share, while adjusted EPS (earnings per share) is expected to be $0.80-$0.88. Cash flow from continuing operations is expected to be in the range $700 to $900 million and free cash flow from continuing operations is likely to be in the range of $525–$725 million in 2017.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.

Xerox Corporation Price and Consensus

 

Xerox Corporation Price and Consensus | Xerox Corporation Quote

VGM Scores

At this time, Xerox's stock has a Growth Score of 'B', though it is lagging a bit on the momentum front with a 'D'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is suitable for value and growth investors.

Outlook

The stock has a Zacks Rank #3 (Hold). We are looking for a below average return from the stock in the next few months.




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