NORWALK, Conn., July 29, 2016 – Xerox (NYSE: XRX) announced today its second-quarter financial results and reiterated its full-year adjusted earnings guidance. The company reported significant progress on its plan to separate into two independent, Fortune 500-scale, publicly traded companies by year-end and on its strategic transformation program.
“We delivered strong second-quarter results reflecting significant progress across our 2016 priorities: delivering on our financial commitments, executing our separation and driving our strategic transformation,” said Ursula Burns, Xerox chairman and chief executive officer. “Our Services segment delivered substantial margin expansion and continued revenue growth in Document Outsourcing. Document Technology revenue declines moderated and margin improved driven by cost and productivity initiatives.”
Xerox delivered GAAP EPS from continuing operations of 15 cents in the second quarter of 2016. Adjusted EPS of 30 cents represented a 7 cent increase over the same period last year driven by a lower tax rate, fewer shares, and higher operating profits. Adjusted EPS excludes after-tax costs of $156 million or 15 cents per share related to the amortization of intangibles, restructuring and related costs, certain retirement related costs and separation costs.
Burns added, “We reached critical milestones in both the separation process and strategic transformation program during the second quarter. With each step forward, I become even more optimistic about the future of our businesses and more confident in our ability to meet our targets for the year while creating two companies with the strong strategic and financial foundations they will need to compete in their respective markets.”
Second Quarter Results
Second-quarter total revenue of $4.4 billion was down 4 percent year-over-year in actual and constant currency. Operating margin of 9.3 percent was up 0.8 percentage points from the same quarter a year ago. Gross margin and selling, administrative and general expenses were 31.2 percent and 19.7 percent of revenue, respectively.
The Services business delivered $2.5 billion in revenue, a decrease of 2 percent or 1 percent in constant currency. Services margin was 9.6 percent, up 2.4 percentage points year-over-year, driven by cost and productivity improvements including benefits from the company’s strategic transformation program.
The Document Technology business delivered total revenue of $1.8 billion, down 7 percent or 6 percent in constant currency. Document Technology margin was 12.6 percent, up 0.1 percentage point year-over-year and 2.4 percentage points sequentially, driven by cost and productivity improvements.
Xerox generated cash flow from operations of $177 million during the second quarter and ended the quarter with a cash balance of $1.2 billion.
Separation and Strategic Transformation Update
During the second quarter, Xerox reported significant progress on its planned separation into two independent, publicly traded companies. The company announced that the new Business Process Outsourcing company will be named Conduent Incorporated and that Ashok Vemuri will become its chief executive officer upon completion of the separation. The Document Technology company will retain the Xerox Corporation name and Jeff Jacobson will serve as its chief executive officer. Ursula Burns will continue in her current role as chairman and chief executive officer of Xerox until the separation and serve as chairman of the Xerox board following the separation.
On June 30, 2016, the initial Form 10 registration statement for Conduent was filed with the Securities and Exchange Commission. The separation remains on track to be completed by year-end.
Xerox today provided an update on estimated costs associated with the separation. The company now expects to incur one-time separation costs of $175 to $200 million pre-tax, which is lower than its previous estimate of $200 to $250 million. Xerox also announced that tax-related separation costs are estimated to be $40 to $50 million. The company expects dis-synergy costs of $40 to $50 million in 2017, which will be more than offset by cost savings from the strategic transformation program.
In addition, Xerox made continued progress on its three-year strategic transformation program to deliver $2.4 billion in total cost savings from ongoing and incremental productivity and cost reduction initiatives across its businesses. The company is on track to realize the approximately $700 million in annualized savings it targeted for 2016. Estimated restructuring and related charges continue to be approximately $300 million for full-year 2016, including $71 million recorded in the second quarter and $197 million year-to-date.
For third-quarter 2016, Xerox expects GAAP EPS of 14 to 16 cents per share and adjusted EPS of 26 to 28 cents per share.
The company reiterated its full-year guidance for GAAP EPS of 45 to 55 cents. Adjusted EPS guidance continues to be $1.10 to $1.20 per share.
Xerox continues to anticipate full-year 2016 cash flow from operations of $950 million to $1.2 billion and free cash flow of $600 to $850 million.
Xerox is helping change the way the world works. By applying our expertise in imaging, business
process, analytics, automation and user-centric insights, we engineer the flow of work to provide greater productivity, efficiency and personalization. Our employees create meaningful innovations and provide business process services, printing equipment, software and solutions that make a real difference for our clients and their customers in 180 countries. On January 29, 2016, Xerox announced that it plans to separate into two independent, publicly-traded companies: a business process outsourcing company and a document technology company. Xerox expects to complete the separation by year-end 2016. Learn more at www.xerox.com.