Xerox Corporation (XRX - Free Report) is scheduled to report second-quarter 2017 results before the opening bell on Aug 1. In the last reported quarter, the company’s adjusted earnings missed the Zacks Consensus Estimate by 4 cents. Over the trailing four quarters, it delivered a positive average earnings surprise of 3.4%, beating estimates once.
Let’s see how things are shaping up prior to this announcement.
Key Factors in the Second Quarter
During the quarter, Xerox announced the acquisition of MT Business Technologies. This acquisition will enable it to strengthen foothold in large metropolitan areas such as Cleveland and Columbus, which offer strong growth potential. The company is poised to enhance and expand its channel reach, majorly in the $20 billion multi-brand reseller space.
Xerox is reprioritizing investments and accelerating its restructuring actions and services to improve revenues and margins. As part of the restructuring, it also decided to execute a three-year strategic transformation program which will target incremental savings of $600 million across all segments. When combined with savings from cost streamlining actions currently in process, Xerox is attempting to realize cumulative cost reduction of $2.4 billion over the next three years. The company also remains committed to its five-plank strategy that is centered on portfolio management, global growth, cost transformation, operational excellence and analytics. With sustained investments to expand geographical footprint and build its services capabilities in areas that provide significant customer value, Xerox expects to reap benefits in the long run.
However, advancements in IT have resulted in the replacement of the traditional means of sending and storing information with the digital media. As a result, Xerox is grappling with decreased demand for paper-related systems and products while its attempts to leverage the business process outsourcing market failed to lend growth momentum. Significant slip ups in its Medicare and Medicare information services for several government agencies across the U.S. also hurt its overall profitability.
A considerable portion of the company’s revenues is generated from operations outside the U.S. With modest revenues coming from the U.K., Xerox is expected to be a high-profile victim of the Brexit fallout. The company also has high pension obligations in the U.K. Pension Plan for salaried employees. Xerox is likely to be stifled by the renegotiated deals and restrictions imposed on trade with other European Union members. Brexit could further result in higher tariff and non-tariff barriers to trade between the U.K. and the European Union, lowering productivity of the company. These undermine its long-term growth potential to some extent.
Our proven model does not conclusively show that Xerox is likely to beat earnings this quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently at 0.00%. This is because both Zacks Consensus Estimate and Most Accurate estimate stand at 84 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank:Xerox has a Zacks Rank #3. This increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.
Note, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.
Stocks to Consider
Here are some stocks within the industry that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat:
Crestwood Equity Partners LP (CEQP - Free Report) , with an Earnings ESP of +160.00%, and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
American Railcar Industries, Inc. (ARII - Free Report) , with an Earnings ESP of +8.07%, and a Zacks Rank #2.
Apple Inc. (AAPL - Free Report) , with an Earnings ESP of +1.27%, and a Zacks Rank #3.
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