Quarterly Xerox earnings were released yesterday and it was another rough one for the venerable imaging vendor. Here are a few nuggets that I found in the press release, which can be seen below my comments.
- Equipment sales revenue down 3.8%
- Total revenue down 5.8%
- 8% decrease in entry-level color multifunction installs
- 21% increase in entry-level black and white devices installs
- 8% increase in mid-range color multifunction installs
- 19% increase in mid-range black and white multifunction installs
- 17% decrease in high-end color installs
- 3% decrease in high-end black and white installs
It’s interesting that there seems to be a shift towards black and white models. Today, the trend typically shows increases of color devices, often at the expense of their b/w counterparts. But in this case, Xerox is showing the opposite, leaving me to wonder what might be causing that anomaly. Perhaps Xerox has found the right price point for entry-level models.
The decrease in high-end (production color installs) is worrisome. While Xerox monochrome production placements have been dropping for years, color was generally an area of strength. Xerox indicated in the release this was impacted by “lower installs of iGen and lower end production systems.” With much of the industry, including Xerox, shifting towards ink and lower cost laser presses, you have to wonder if the iGen’s days aren’t numbered.
While a 17% decrease suggests a problem, sales of the newly released inkjet Iridesse production press should help improve this as we move forward. On the plus side, Xerox seems to have decreased less in monochrome than they have in past earnings updates, showing signs of life in an area where they have been struggling for some time.
Although the quarter was certainly one that Xerox might like to sweep under the rug, there are signs of life in key areas. Increases in mid-range suggests improved penetration by their B2B sales channels. Xerox has said on several occasions that their ConnectKey customizable user interface/solutions strategy would drive hardware sales. Perhaps they were right as these numbers saw improved installs for the first time in ages.
Here is the press release from Xerox:
Xerox Reports Progress on Key Priorities to Drive Business Improvement; Delivers Strong Cash Flow and Operating Margin Expansion
Increasing Full-Year Free Cash Flow Expectations
Third-Quarter 2018 Highlights:
- Operating cash flow of $274 million increases $717 million or $157 million on an adjusted basis
- Adjusted Operating margin of 13.1 percent expands 1.0 point year-over-year
- GAAP EPS from continuing operations of 34 cents, down 33 cents year-over-year, driven by an incremental non-cash charge of $95 million associated with the 2017 enactment of the U.S. Tax Act
- Adjusted EPS of 85 cents, down 4 cents year-over-year, driven by higher year-over-year tax rate
- Returned $353 million to shareholders in the form of share repurchases and dividends; increasing share repurchase expectations for 2018 to $700 million from $500 million
