Xerox Reports First-Quarter 2015 Earnings
Document Technology business was down 10 percent
First-Quarter 2015 Summary:
- GAAP EPS from continuing operations of 16 cents
- Adjusted EPS of 21 cents
- Revenue of $4.5 billion, 56 percent from Services
- Operating margin of 7.6 percent, down 1.1 percentage points year-over-year
- Cash flow from operations of $113 million
- Share repurchase of $216 million
Xerox (NYSE: XRX) announced today first-quarter 2015 adjusted earnings per share of 21 cents. Adjusted EPS excludes 5 cents related to the amortization of intangibles, resulting in GAAP EPS from continuing operations of 16 cents.
In the first quarter, total revenue of $4.5 billion was down 6 percent or 2 percent in constant currency. Revenue from the company’s Services business, which represented 56 percent of total revenue, was $2.5 billion, down 3 percent or up 1 percent in constant currency. Services margin was 7.5 percent, down 1.1 percentage points, primarily due to higher costs in our legacy Health Enterprise platform implementations.
Revenue from the company’s Document Technology business was $1.8 billion, down 10 percent or 6 percent in constant currency. Document Technology margin was 11.1 percent, down 1.1 percentage points due to increased pension expense, as expected.
“Our earnings are in-line with the guidance we provided,” said Ursula Burns, Xerox chairman and chief executive officer. “Results in Document Technology, which included the increased impact from foreign currency, largely met our expectations. Several of our Services businesses performed well, but overall Services segment results fell short of our expectations driven by higher implementation costs in certain Health Enterprise platform accounts.”
First-quarter operating margin of 7.6 percent was down 1.1 percentage points from the same quarter a year ago. Gross margin was 31.2 percent, and selling, administrative and general expenses were 20.5 percent of revenue.
Xerox generated $113 million in cash flow from operations during the first quarter, ending the quarter with a cash balance of $872 million. The company repurchased $216 million in stock in the quarter.
2015 Guidance
We expect increased currency headwinds, softer signings and acquisition timing to impact revenue; and Services margin to be impacted by increased implementation costs in legacy Health Enterprise accounts. As a result, we are adjusting our full year expectations.
| Current 2015 Guidance | Previous 2015 Guidance | |
| Revenue at Constant Currency | Down ~1% | Flat |
| Currency Impact | (4) pts | (3) – (4) pts |
| Services margin | 8.5% – 9.0% | 9.0% – 10.0% |
| GAAP EPS from continuing operations | $0.77 – $0.83 | $0.83 – $0.89 |
| Adjusted EPS | $0.95 – $1.01 | $1.00 – $1.06 |
Xerox continues to expect full-year 2015 cash flow from operations of $1.7 to $1.9 billion and free cash flow from operations of $1.3 to $1.5 billion.
The company continues to expect to use its strong free cash flow and anticipated proceeds from the pending ITO divestiture to repurchase up to $1 billion in shares this year, return approximately $300 million to shareholders in dividends, and to spend up to $900 million on acquisitions.
For second-quarter 2015, Xerox expects GAAP earnings of 17 to 19 cents per share and adjusted EPS of 21 to 23 cents per share.
As we previously communicated, these results and guidance reflect the pending sale of the company’s ITO business to Atos, and the related reporting of the ITO business as a discontinued operation.