Xerox Is Not Just a Photocopier but Much More for An Investor

August 24, 2014 | About: XRX +0%

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 caters to small businesses and large global business to focus on their core business.

Quarterly results barely missing the estimates
Xerox (XRX) 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 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 perform solid benefit through a taught 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 document based organization to one that is a high-margin outsourcing organization.
As the company steps into the second half of the fiscal, its stays focused around enhancing the advancement and exploiting new opening 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 on returning large chunk of money to its shareholder through repurchase programs and dividends.

Money for investors from strong cash flow
Xerox has been stringent on 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 some point.
The organization produced $325 million in cash flow from operations amid 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 channel 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 pushed 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 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.

Mixed 4Q for Xerox

by Zacks Equity Research

January 24, 2013 | Comments : 0 Recommended this article: (0)

XRX | LXK | PBI | CAJ

Xerox Corp. (XRX - Analyst Report) reported GAAP earnings of $335 million or 26 cents per share in the fourth quarter of 2012 compared with $375 million or 26 cents in the year-ago quarter, driven by decrease in sales in the Technology segment.. Adjusted EPS in the quarter stood at 30 cents, ahead of the Zacks Consensus estimate by 2 cents.

For fiscal 2012, GAAP earnings stood at 88 cents, down 2% year over year. Adjusted earnings stood at $1.03 per share for the full year, in line with the Zacks Consensus Estimate

Revenues in the quarter declined 1% (flat in constant currency) year over year to $5.9 billion, missing the Zacks Consensus Estimate of $5.8 billion. For fiscal 2012, revenue stood at $22.4 billion down 1% year over year.

Operating margin was up 0.3 basis points to 10.3% in the fourth quarter, driven by savings from restructuring and lower selling and administrative expenses. Gross margin dipped 0.7% basis points to 31.5% in the reported quarter. This decrease was driven primarily by the higher overall mix of Services revenue.

Segment Performance

Revenues from the Services segment, which include Document Outsourcing (DO), Business Process Outsourcing (BPO) and Information Technology Outsourcing (ITO), rose 7% to $3.0 billion in the fourth quarter (with no impact from currency), driven by higher revenues from all three subdivisions.

Growth in government healthcare, transportation businesses and customer care helped BPO revenues improve 8% in the reported quarter. Revenues from the DO segment rose 2% (with no impact from currency) due to new partner print services offerings. Revenues from ITO segment went up 15% (Including 1% negative impact from currency) on signings growth in the fourth quarter.

Revenues in the Technology segment dipped 8% to $2.5 billion, with no negative impact from currency. The decline was attributable to a 14% fall in equipment sales and a 4% decline in annuity revenues. The disappointing performance of this segment stems from the fact that Xerox’s customers are migrating to its partner print services offering.

Revenues in the Other segment went down 4% to $374.0 million, including a negative impact of 1% point from currency. The decline in revenues was attributable to lower patent sales and licensing revenue

Financial Position

Xerox had cash and cash equivalents of $1246.0 million as of Dec 30, 2012, compared with $902.0 million as of Dec 31, 2011. Total debt stood at $8.5 billion as of Dec 30, 2012, compared with $8.6 billion as of Dec 31, 2011.

The company generated $1.8 billion in cash from operations during the fourth quarter and expects to generate operating cash flow of $2.1 billion to $2.4 billion in fiscal 2013

Guidance

In fiscal 2012, Xerox focused on scaling its services business to align itself with growth opportunities in the $600 billion market. For first quarter 2013, the company expects adjusted earnings between 23 cents and 25 cents a share and expects adjusted EPS of $1.09 to $1.15 in fiscal 2013.

However, the company needs to be wary of its competitors, which include formidable names such as Lexmark International Inc (LXK - Analyst Report) and Canon Inc (CAJ - Snapshot Report).

Is Xerox A Value Trap For Investors?

                   >>>>>from Saibus Research via Seekingalpha.com <<<<<<<

We have been following Xerox Corporation (XRX) since the middle of January largely because David Einhorn (Greenlight Capital) had purchased 17M shares of the company in Q4 2011. We have stepped up our coverage of Xerox in October as the company's shares were trading at a 30% discount to book value. However, we are most certainly aware that just because a company's shares are trading at a low price to book value does not automatically make it a great value.

When we first started following Xerox, the company's shares were trading at a 5% discount to book in the middle of January. The primary reason why its price to book discount narrowed to a small 5% discount to book was due to investor enthusiasm surrounding David Einhorn's stake in Xerox through his Greenlight Capital hedge fund. Although Xerox is cheap by many traditional measures such as free cash flow yield, PE ratio and price to book, we have demurred from taking a position in the company because we have been concerned that it was a value trap. We previously covered why we saw it to be a value and in this report we will analyze why we think it may be a value trap.

Source: Morningstar Direct
Why Xerox May be a Value Trap:
Xerox's CEO Ursula Burns: Ursula Burns has been President or CEO of Xerox since April 2007 and during that time frame, Xerox's stock has registered a negative total return of 57%. Xerox earned $1.22 in reported EPS in 2006, the year before Burns became President. Despite spending over $4.1B in acquisitions and $2.6B on share repurchases, Xerox's Adjusted EPS is expected to be $1.08 and its reported EPS is expected to be $.85 after accounting for acquisition related intangible amortization and restructuring charges. Part of our apprehensiveness with regards to jumping into Xerox alongside Greenlight Capital is that we were concerned that the weak macroeconomic environment was an excuse for poor management and execution issues. We disagree with Oscar Schafer that Ursula Burns is a "tough, no-nonsense CEO" based on the performance of Xerox during her leadership of the company. We believe in calling things as we see them and we think it's appropriate to consider the poor results we have seen under Ursula Burns when evaluating her tenure.

Source: Morningstar Direct and Xerox's Most Recent Guidance
Xerox's Quality of EPS: 2006 was the last year before Ursula Burns was CEO or President and it generated $1.22 in GAAP EPS and $1.05 in Adjusted EPS. 2006 saw its GAAP EPS exceed its adjusted EPS as $500M in Tax Audit Benefits were partially offset by $254M in restructuring charges and $68M in litigation expenses. The company had no adjustments to EPS for FY 2007 and it reported $1.19 in EPS for the year. Unfortunately for Xerox, its EPS from 2008 to present has seen a significant level of adjustments to EPS in each year. 2009 was the year with the lowest level of adjustments ($.15/share) and 2008 was the highest ($.84/share). Of Xerox's $4.90 in EPS from 2008 to 2012, nearly $2/share was clawed back for its never-ending "non-recurring adjustment charges to EPS". 2012 promises to be no different as it will see about $.25 in non-recurring charges for restructuring and amortization of acquisition related intangible assets. At least Xerox's management is only targeting $.15/share in adjustments in 2013 primarily due to amortization of acquisition related intangibles.

Xerox's Revenue Growth: Xerox's year-over-year revenue growth has never exceeded 3% on a pro forma basis in any quarter since its 2010 acquisition of Affiliated Computer Services. That's not to say that the ACS deal was a deal from hell. In our opinion, we believe that deal was a lifeline for Xerox as ACS's strength in IT Services has offset the weak performance from legacy Xerox operations. Xerox grew its services related revenues by nearly 5% year-over-year in Q3 2012 even though it was faced with significant global macroeconomic headwinds. Unfortunately for Xerox, this was not enough to offset a 10% revenue decline from its products and supplies as well as the associated technical service, support and financing of its products.

Source: Morningstar Direct
Xerox's Guidance: Even though we have not taken a position in Xerox, we believe that covering the company is comparable to water torture. The reason why we feel this way about Xerox isn't because the stock has gone down by 22% since we began increasing our research resources on it, but because the company has been steadily reporting guidance that has been soft and sour. We think it is becoming a trend on Xerox's part to meet consensus adjusted estimates and to reduce forward guidance and also to announce "non-recurring restructuring charges" that are "excluded from adjusted EPS guidance". At the beginning of 2012, Xerox issued adjusted EPS guidance of $1.12-$1.18. As of its most recent quarter, the company has once again revised its guidance down to a range of $1.07-$1.09, down from $1.07-$1.12 in Q2 2012. Xerox recently announced guidance of $1.09-$1.15 for FY 2013, which was 3% lower than its original guidance for FY 2012.

Source: Xerox's 2012 Earnings Reports

Conclusion
In conclusion, we have taken a fair and balanced approach to analyzing Xerox. We previously evaluated what we liked about Xerox and we have now analyzed what we don't like about Xerox. One thing that Xerox needs to do in order to enable it to unlock shareholder value is replace Ursula Burns with an executive who knows what he or she is doing. Burns has been President or CEO for five going on six years and has been CEO for more than three years. During Burns' tenure as President or CEO of Xerox, the company's shares have declined by 57% while the S&P 500 has recovered its financial crisis losses and generated a total return of 12% during that time. Xerox's 57% negative total return paled in comparison to the 32% positive total return generated by the S&P SPDR Technology ETF (XLK). Although we are pleased to see Xerox make overtures to shareholders by increasing the dividend and share repurchase authorization, we are getting irritated with the sour notes that we've been hearing from management and we question whether Xerox has the right management team to enable it to unlock shareholder value.

Source: Morningstar Direct
Additional disclosure: Additional disclosure: This article was written by an analyst at Saibus Research. Saibus Research has not received compensation directly or indirectly for expressing the recommendation in this article. We have no business relationship with any company whose stock is mentioned in this article. Under no circumstances must this report be considered an offer to buy, sell, subscribe for or trade securities or other instruments.