Xerox Q1 Profit Falls, Sees Q2 Adj. EPS In Line With View

(RTTNews) - Xerox Corp.(XRX) reported a profit for the first-quarter 2016 that fell 85 percent from the prior year, while quarter total revenue declined 4 percent or 3 percent in constant currency. The company expects second-quarter adjusted earnings per share to be in line with analysts estimation. It cut its fiscal year 2016 GAAP earnings per share outlook, but reaffirmed its annual adjusted earnings guidance.

The company said it remains on track to complete its planned separation into two independent, publicly-traded companies by the end of the year and said it has made important progress on its three-year, $2.4 billion strategic transformation program.

".... Document Technology revenue declines remained in line with last quarter and continue to be pressured by weak developing markets economies. We have accelerated our cost reduction efforts across the company and expect to begin realizing the benefits in the second quarter," said Ursula Burns, Xerox chairman and chief executive officer.

Net income attributable to the company for the first-quarter 2016 dropped 85 percent to $34 million from the prior year's $225 million, with earnings per share declining to $0.03 from $0.19 last year.

During first quarter 2016, the company recorded net restructuring and asset impairment charges of $123 million, which includes $124 million of severance costs related to headcount reductions of approximately 4,800 employees worldwide and $2 million of lease cancellation costs.

During first quarter 2015, the company recorded net restructuring and asset impairment charges of $14 million, which included $21 million of severance costs related to headcount reductions of approximately 580 employees worldwide and $1 million of lease cancellation costs. These costs were partially offset by $8 million of net reversals for changes in estimated reserves from prior period initiatives.

On an adjusted basis, net income from continuing operations attributable to Xerox was $231 million or $0.22 per share, compared to $278 million, or $0.24 per share in the same quarter last year. Analysts polled by Thomson Reuters expected the company to report earnings of $0.23 per share for the quarter. Analysts' estimates typically exclude special items.

The latest-quarter adjusted earnings per share excluded after-tax costs of $197 million or $0.19 cents per share, related to the amortization of intangibles, restructuring and related costs, certain retirement related costs and separation costs, resulting in GAAP earnings per share from continuing operations of $0.03.

First-quarter total revenue of $4.28 billion was down 4 percent or 3 percent in constant currency. Wall Street expected revenues of $4.24 billion.

The Services business, which represented 58 percent of total revenue, delivered $2.5 billion in revenue, representing an increase of 1 percent or 2 percent in constant currency. Services margin was 7.7 percent, up 0.1 percentage point.

Revenue from the company's Document Technology business was $1.6 billion, down 10 percent or 9 percent in constant currency. Document Technology margin was 10.2 percent, down 2.5 percentage points.

For second-quarter 2016, Xerox expects GAAP earnings per share to be in the range of $0.06 to $0.08 and adjusted earnings per share of $0.24 to $0.26. Analysts project second-quarter earnings of $0.26 per share.

The company affirmed its full-year guidance for adjusted earnings per share of $1.10 to $1.20 per share. Analysts expect annual earnings of $1.11 per share.

Xerox aligns its full-year GAAP earnings per share and cash flow guidance to reflect separation costs and higher restructuring and related costs. The company now expects full-year GAAP earnings per share from Continuing Operations of $0.45 to $0.55 , previously $0.66 to $0.76.

Xerox expects full-year 2016 cash flow from operations of $950 million to $1.2 billion, previously $1.3 to $1.5 billion, and free cash flow of $600 to $850 million, previously $1.0 to $1.2 billion.

On January 29, 2016, Xerox announced a plan to separate into two independent, publicly-traded companies, each of which will be a leader in its respective industry. Xerox intends to make its initial Form 10 registration statement filing with the Securities and Exchange Commission in July 2016, on track to complete the separation by year-end. The company has determined that the optimal transaction structure for the separation is a tax-free spinoff of its BPO business.

Xerox expects to incur one-time separation costs of approximately $200 to $250 million in 2016, inclusive of $8 million incurred in the first quarter. This amount does not include potential tax cost related to the separation, some of which may be offset by foreign tax credits.

In conjunction with the separation, Xerox implements a three-year strategic transformation program to deliver significant productivity gains and cost reductions across its businesses. It expects to realize approximately $700 million in annualized savings in 2016 from ongoing and incremental initiatives. The company recorded $126 million of restructuring and related costs in the first quarter related to the program and anticipates total restructuring and related costs of $300 million for the full year.

XRX closed Friday's regular trading at $11.17, up $0.01 or 0.09 percent.