Xerox (XRX) Q2 2024 earnings summary

Executive summary

• Q2 2024 revenue was $1.58 billion, down 10% year-over-year, with sequential improvements in adjusted operating income margin, cash flow, and revenue trajectory, reflecting benefits from strategic organizational changes and Reinvention initiatives.

• Adjusted operating margin was 5.4%, down 70 basis points year-over-year; adjusted EPS was $0.29, down from $0.44, and GAAP net income was $18 million ($0.11 per share), up $79 million year-over-year due to the absence of the prior year PARC donation charge.

• Reinvention initiatives have identified over $700 million in gross cost savings, targeting $300 million adjusted operating income improvement by 2026.

• Strategic exits from non-core businesses and geographic simplification actions, including the sale of Argentina and Chile operations, contributed to revenue declines and a $32 million net after-tax loss.

• Full-year 2024 guidance was revised downward, but management remains confident in achieving multi-year margin and income improvement targets.

Financial highlights

• Q2 2024 revenue: $1.58 billion, down 10% year-over-year; adjusted operating income: $85 million (5.4% margin); adjusted EBITDA: $151 million (9.6% margin); free cash flow: $115 million, up $27 million year-over-year.

• Gross margin was 33.0%, down 1.0 point year-over-year; adjusted gross margin was 33.5%.

• Equipment sales were $356 million, down 15.2% year-over-year; post-sale revenue was $1.22 billion, down 8.4%.

• Print and Other segment profit was $81 million (5.4% margin), down 24.3%; XFS segment profit was $4 million (4.5% margin), with XFS revenue down 12%.

• Operating cash flow for Q2 was $123 million, up $28 million year-over-year; cash and equivalents at quarter end were $551 million.

Outlook and guidance

• Full-year 2024 revenue guidance lowered to a 5%–6% decline in constant currency, reflecting further reductions in non-strategic revenue and incremental Reinvention actions.

• Adjusted operating income margin guidance reduced to at least 6.5% (from 7.5%); free cash flow guidance set at a minimum of $550 million.

• Management maintains a target of $300 million adjusted operating income improvement by 2026 and cumulative free cash flow over $1.5 billion from 2024–2026.

• Revenue and margin are expected to improve in the second half of 2024, with growth in print and digital/IT services.

• Operating cash flow for 2024 is expected to be at least $600 million, with capital expenditures around $50 million.