KEY POINTS

  • Outside factors beyond Xerox’s control damaged the company’s performance in the third quarter.
  • Compared to predictions, sales were low, earnings nosedived, and free cash flows were in the red.
  • Management wants to give a good impression of Xerox’s future opportunities, but the company has a lot of work to do before it improves.

What’s going on with Xerox stock

Xerox stock tumbled sharply on Tuesday after the company’s third-quarter results disappointed investors. By the end of trading, Xerox’s shares were down 14%, having earlier fallen by as much as 25%.

Why we care

Xerox‘s (NASDAQ:XRX) sales for quarter three were close to the year-ago result at $1.75 billion. Nevertheless, despite this slight increase in sales, adjusted earnings decreased by 60%, amounting to only $0.19 per share diluted. This is far from the average Wall Street expectations of closer to $0.43 per share on revenues that would have been around $1 .77 billion.

In addition, management decreased its full-year revenue guidance by around $50 million. As a result, Xerox’s minimum target for free cash flow during the same period fell from $400 million to $125 million.

What now

In the second quarter’s guidance update, Xerox expected its supply chain to improve in the third quarter, but that has yet to happen. The company also faced significant currency exchange challenges since 35% of its revenue is from abroad. Inflation also negatively impacted Xerox’s income and expenses.

CEO Steve Bandrowczak didn’t shy away from the problems his business will face in the next few years due to macroeconomic conditions. But, on the contrary, he remained optimistic about Xerox’s growth potential. He pointed to its long history of success in print and document management as a strength that would help it weather these troubles.

After today’s price drop, Xerox shares are trading at new multiyear lows. However, some people would still argue that the stock is worth investing in because it only costs 7.6 times forward earnings and 0.4 times trailing sales. In addition, the dividend yield stands a chance of being pretty high at 7.6%.

Even though Xerox is fighting through some business challenges, they have yet to win our trust. If the company wants to change that, it must do more work.

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