Xerox Reports 4Q 2014 Earnings

Xerox announced fourth-quarter 2014 adjusted earnings per share of 31 cents. Adjusted EPS excludes 5 cents related to the amortization of intangibles, resulting in GAAP EPS from continuing operations of 26 cents.
 
As previously reported, these results reflect the pending sale of the company’s ITO business to Atos, and the related presentation of the ITO business as a discontinued operation.
 
In the fourth quarter, total revenue of $5.0 billion was down 3%, or 1% in constant currency. Revenue from the company’s Services business, which represented 54% of total revenue, was $2.7 billion, up 1% or 3% in constant currency. Services margin was 9.8%.
 
Revenue from the company’s Document Technology business, which represented 43% of total revenue, was $2.2 billion, down 8% or 6% in constant currency. Document Technology margin was 14.4%.
 
“We delivered strong profit and cash in the fourth quarter,” said Ursula Burns, chairman and CEO. “Services revenue growth improved and margin expanded both sequentially and year-over-year. This is an indication that our plan is delivering positive results. Total contract signings increased 20%, driven by renewals. We continue to lead in Document Technology, where we are executing well and where we expanded profit year-over-year.”
 
“We’re encouraged by these results, which demonstrate our ability to win in segments where Xerox is uniquely differentiated like healthcare, graphic communications and transportation,” Burns added.
 
Fourth-quarter operating margin of 10.4% was up one percentage point over the same quarter a year ago. Gross margin was 32.1%, and selling, administrative and general expenses were 18.7% of revenue.
 
Xerox generated $857 million in cash flow from operations during the fourth quarter and $2.06 billion for the year. Xerox ended 2014 with a cash balance of $1.4 billion. The company repurchased $341 million in stock in the quarter and $1.07 billion for the full-year.
 
The Xerox Board of Directors increased the company’s quarterly cash dividend by 12% to 7 cents per share, beginning with the dividend payable on April 30, 2015.
 
For first-quarter 2015, Xerox expects GAAP earnings per share of 16 to 18 cents and adjusted EPS of 20 to 22 cents.
 
Xerox 2015 adjusted earnings per share guidance is $1.00 to $1.06, reflecting a 5 cent per share impact of recent shifts in currency rates, specifically the weakening of the Euro. Xerox expects full-year GAAP earnings per share from continuing operations of $0.83 to $0.89.
 
As a result of the ITO divestiture and recent shifts in currency rates, Xerox 2015 guidance for cash flow from operations is $1.7 to $1.9 billion and free cash flow is $1.3 to $1.5 billion, reflecting a negative $200 million impact to cash flow from operations and a negative $100 million impact to free cash flow. Xerox expects to offset the impact from the ITO sale on free cash flow by 2016.
 
Full-year 2014 results include:
 
• GAAP EPS from continuing operations of 90 cents, adjusted EPS of $1.07.
• Total revenue of $19.5 billion; $10.6 billion from Services, $8.4 billion from Document Technology.
• Operating margin of 9.6%.
• Operating cash flow of $2.06 billion.
• Net income from continuing operations of $1.1 billion, adjusted net income of $1.3 billion.
• Share repurchases of $1.07 billion.