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Xerox falls short in first quarter

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Xerox Corp. reported a decline in total revenues and net income in its first earnings report since spinning off its business process services division as Conduent Inc. That spinoff was completed in January.

Jeff Jacobson of Xerox
Xerox CEO Jeff Jacobson.

For the first quarter, the Norwalk company reported a 6.2 percent revenue decline to $2.45 billion, compared with $2.62 billion during the same period a year earlier. Net income was $16 million or 2 cents per share, compared with $34 million or 6 cents a share in its first quarter in 2016.

Xerox also delivered first-quarter 2017 GAAP earnings per share from continuing operations of 2 cents. Adjusted EPS was 15 cents, which excluded 13 cents per share of after-tax costs related to the amortization of intangibles, restructuring and related costs, certain retirement related costs, loss on extinguishment of debt and a tax benefit. During the quarter, the company’s earnings were impacted by a charge related to its equity investment in Fuji Xerox, resulting in a 3-cent reduction in both GAAP and adjusted EPS.

Fuji Xerox is 25 percent owned by Xerox and 75 percent owned by Fujifilm Holdings Corp. On April 20, Fujifilm announced it is conducting a review of the accounting at Fuji Xerox’s New Zealand subsidiary related to the recovery of receivables associated with certain leasing transactions that occurred in, or prior to, Fuji Xerox’s fiscal year ending March 31. The Fujifilm review is ongoing and a charge of approximately $30 million in the first quarter of 2017 represents Xerox’s share of the current Fujifilm estimated adjustments from the review.

First quarter 2017 net restructuring and asset impairment charges of $110 million included $110 million of severance costs related to headcount reductions of approximately 1,000 employees worldwide and $2 million of lease cancellation.

The company also said that first quarter 2017 actions impacted several functional areas, with approximately 30 percent of the actions focused on gross margin improvements, approximately 60 percent on selling, administrative and general expenses reductions and approximately 10 percent on research, development and engineering expenses. Those costs were partially offset by $2 million of net reversals for changes in estimated reserves from prior period initiatives.

During first quarter 2016, restructuring and related costs were $100 million, consisting of $98 million in restructuring and asset  impairment charges and $2 million of additional costs primarily related to professional support services.

According to Xerox CEO Jeff Jacobson, “Revenue and cash flow were in line with our expectations and, despite currency headwinds, operating margin expanded driven by productivity savings from our Strategic Transformation initiatives. While we still have a lot to do, we laid the foundation to deliver on our full-year commitments.”

Xerox expects to generate operating cash flow from continuing operations of $700 million to $900 million and free cash flow from continuing operations of $525 million to $725 million in 2017.

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