U.S.-based multinational document management company Xerox Corporation (XRX, Financial) reported a drop in its first quarter sales post its announcement of lower profit margins this fiscal year. Owing to lower sales and higher costs, the company is prepared to face a fall of 1% in revenues of 2015, blaming a strong dollar.
Current shortfalls
Founded in 1906, Xerox established itself as a seller of a range of color and black-and-white printers, multifunction systems, photocopiers, digital production printing presses and related consulting services and supplies. Headquartered in Connecticut, the company has served as an innovator in several important elements of personal computing.
Since sometime, the company had been facing issues with sales targets and profit margins. For the first quarter of 2015, it reported a loss, which was even below Wall Street’s expectations. Shares of the company fell 4.5% in premarket trading. Running on lower profits, the company cut 580 jobs in the latest quarter whereas worldwide almost 1200 people have been axed from the company. It was also changing ways towards Information Technology (IT) sector. With companies moving to smartphones and tablets instead of printing of documents, problems have only increased for Xerox. Services revenue, which account for 56% of the total revenue, also fell 2.7% with revenues from company’s printing business getting down 10.5%. Total revenue fell 6.3% to $4.47 billion, which was behind analysts’ estimate of $4.56 billion. In addition, there was a 20% fall seen in the net income attributable to Xerox at $225 million whereas on adjusted basis, there was a gain of 21 cents per share. Shares of the company were down 10.5% at $11.75 during midday trading with a 52-week low of $11.32 recorded in earlier session. The document technology unit of the company encountered a decline of 10% from last year to $1.8 billion. Speaking of total costs and expenses, there was a 5% fall seen from a year ago to $4.27 billion.
Fumbled future
In an announcement made by Xerox on outlook for 2015, the adjusted profit was forecast as 95 cents to $1.01 per share from $1.00 to $1.06. With expenses rising in its services business, the company is expecting a margin of 8.5% to 9.0% in 2015, lower than the previous estimate of 9% to 10%. The revenues for 2015 will also be lower than the forecast of 2% to 4% growth due to rise in costs.
Popular for its printers and paper copiers, the company was undergoing a restructuring and repositioning process keeping with the falling demand of its current business. It has been venturing into IT outsourcing services and recently acquired Consilience Software, which is a health case management software provider, used by government agencies. However, there is a cost going in the new job, which Xerox is finding difficult to bear for too long with its sales declining consistently. The weakening of the euro has further enhanced problems for the company. Furthermore, Xerox is banking upon increased currency headwinds, softer signings and acquisition timings to hit revenues.
Our take
Keeping hopes on, the company informed that it has generated $113 million in cash flow taking its first quarter operations cash balance to $872 million. The company was also able to repurchase stocks worth $216 million in the first quarter this year. There is a good news for investors, too, as the company plans to repurchase $1 billion shares this year from the earnings of its ITO business and return to its shareholders dividends worth $300 million. It also hopes to spend $900 million on acquisitions this fiscal.
