Xerox's share value decreased by 12% on a Tuesday.
Xerox's stock took a tumble on Tuesday, plummeting 11.7% by 10:25 a.m. ET. The culprit? The company's dismal Q4 earnings report. While Xerox beat the sales forecast, falling just short of the $1.6 billion mark, their earnings per share missed the mark, coming in at $0.36 instead of the projected $0.49.
The non-GAAP earnings figure, which excludes one-time costs, added to the disappointment. Calculated by GAAP standards, Xerox reported a $0.20-per-share loss for the quarter. This dismal performance is part of a larger trend for Xerox, with the company experiencing a nearly 10% decline in sales for the full fiscal year 2024. Total revenue for the year was a paltry $6.2 billion, and GAAP losses were a staggering $10.75 per share.
Despite these dismal figures, Xerox CEO Steve Bandrowczak remains hopeful for the future, predicting better news in 2025. However, Bandrowczak's predictions don't add up. Xerox expects low-single-digit sales growth in 2025, but free cash flow is expected to range from only $350 million to $400 million. That's not growth – it's shrinkage, expanding sales at a reduced cash flow rate.
Investors are left scratching their heads. Xerox's stock is currently trading at a price-to-free-cash-flow ratio of only 3, making it a potential bargain. But with the company's dismal performance in 2024, it's hard to ignore that something isn't adding up.
Integrating insights from the enrichment data, Xerox's Q4 earnings miss and financial performance for the full fiscal year 2024 was due to several factors. Revenue declined by 8.6% year over year to $1.613 billion, below the consensus of $1.571 billion. The company's full-year revenue was $6.22 billion, a 9.7% decline from the previous year. Equipment sales decreased by 14.2%, while post-sale revenue dropped by 6.7%.
Xerox's gross margin and operating margin also took a hit. In Q4, the gross margin fell by 240 basis points to 31.1%, with equipment margin hitting 27.4% and post-sale margin decreasing by 160 basis points to 32.4%. For the full year, the adjusted operating margin fell to 4.9%. Xerox also recorded a non-cash goodwill impairment charge of $1 billion for FY 2024, contributing to a net loss of $1.32 billion and a GAAP loss per share of $10.75.
Despite these challenges, Xerox is focusing on its "Reinvention" strategy, which includes slimming down its geographic footprint, ceasing high-end production printer manufacturing, and selling its European paper business. The company expects low single-digit revenue growth in constant currency for FY 2025, with free cash flow guidance of $350 million to $400 million and an adjusted operating margin of at least 5.0%.
In conclusion, while Xerox's stock may be a bargain at its current price, its dismal financial performance in 2024 raises red flags for investors. With low-single-digit revenue growth expected in 2025 and free cash flow guidance of only $350 million to $400 million, investors must weigh the potential reward against the risk in buying Xerox stock.
Investors might want to reconsider their approach to investing in Xerox, given its poor financial performance in 2024 and the lackluster projections for 2025. Despite the stock's low price-to-free-cash-flow ratio, the company's dismal earnings and revenue figures, along with limited free cash flow growth, could discourage many finance-focused investors.
