The company is an expanded business methodology outsourcing organization overseeing transaction-escalated methodologies. Mass-travel ticketing frameworks, digital printing equipment, bundling printers, wide-design scanners and digital document management system are all part of Xerox's present product portfolio. Xerox still makes printers and individual printers, as well, however those products are presently a minority part of its business blend. The vast majority of Xerox's top line is currently determined by administrations. Xerox Corporation (XRX, Financial) caters to small businesses and large global business to focus on their core business.
Quarterly results barely miss the estimates
Xerox as of late reported second-quarter results. It posted a consolidated revenue of $5.292 billion, sequential growth as against $5.110 billion in last quarter, but dipped by 2% year over year. The company reported EPS of $0.27 beating the consensus estimate just by $0.1, yet net income came in at $270 million scarcely missing estimate by $20 million.
The second quarter showed advancement in execution on the company’s business technique. In the services business, revenue gains and margins are inclining great in commercial services, document outsourcing and universally. The revenue for the service business (57% of total revenues) increased 2% year over year to $2,992 million in the quarter. Service sector margins gains were partially muted by sustained weight in the government health care business including unplanned injury charges.
The document technology business continued to produce a solid benefit through a taut and compelling methodology to operations. Revenues in the document technology segment dipped 6% year over year to $2,125 million (40% of total revenues) due to a fall in equipment sales and annuity revenues.
The service business is the segment where investors ought to be centered, as this section will counterbalance the decrease in document technology. Xerox's extreme arrangement is to move far from being a document-based organization to one that is a high-margin outsourcing organization.
As the company steps into the second half of the fiscal, it stays focused around enhancing the advancement and exploiting new openings that will shape to achieve higher growth plan.
Xerox has altogether pre-dominated the market since the start of 2013, with an increase of 92%, but, it still has a lot of room to climb. The company still has great assessment metrics and strong profit prospects; its cost price to free cash flow ration of 8.32 is the most minimal of all S&P 500 tech stocks. Furthermore, the organization is persistent in returning a large chunk of money to its shareholders through repurchase programs and dividends
Money for investors from strong cash flow
Xerox has been stringent in its share repurchase programs; this enables it to attain a higher confidence among its investors. The company has been paying regular dividends; forward annual dividend yield is at 1.91%, and the payout ratio is only 25%. The annual rate of dividend growth over the past three years was at 8.1% and over the past five years was at 4.8%. The dividend yield has now fallen below 2%, but I would not be surprised to see the company raise its dividend at some point.
The organization produced $325 million in cash flow from operations in the second quarter and $611 million for the first half of fiscal 2014. In the second quarter, Xerox repurchased $204 million in stock and $479 million in the first half of the year. Xerox bought $696 million of its shares in 2013, in the wake of repurchasing $1.05 billion of its stock in 2012.
Journey ahead
Moving ahead, Xerox hopes to realign its plan of action to better adjust to the evolving market scenarios by stretching out indirect distribution channels and streamlining its supply chain and rich product portfolio. Xerox additionally plans to center all the more on vertical markets like healthcare. Furthermore, it is consolidating its managed print services (MPS) with business process and IT outsourcing capacities and proceeding with its push for authority in document technology.
For the next quarter, Xerox anticipates GAAP earnings to be in range of $0.21 to $0.23 per share while adjusted earnings are expected to be within $0.25 to $0.27. It further has an allocated budget of $500 million for new acquisitions with prime focus on services, this in turn will always leverage the top line in future.
Conclusion
Since Xerox produces heaps of money and the payout proportion is low, there is a decent possibility that it will keep on raising its dividend. The company continued to deliver large sums of cash back to shareholders during the first half of 2014. Given current valuation and profitability, I won’t be wrong to anticipate a high rate of returns in the year to come which make me conclude that Xerox can be a high yield stocks in a longer run.
