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What's in Store for Xerox (XRX) This Earnings Season?

Zacks Equity Research
Updated

Xerox Corporation XRX is scheduled to report first-quarter 2016 results before the opening bell on Apr 25. In the last reported quarter, earnings beat the Zacks Consensus Estimate by 3 cents. Over the trailing four quarters, the company posted a positive average earnings surprise of 3.77%, beating estimates twice.

Let’s see how things are shaping up prior to this announcement.

Key Factors in the First Quarter

In the soon-to-be-reported quarter, Xerox announced plans to split its BPO business from its Document Technology and DO business. The separation will see Xerox segregating its hardware operations and its services business, with each functioning as an independent, publicly traded company. Its planned restructuring might just bring the turnaround that the company needs as it aims to focus on strengthening its portfolio, improving productivity and boosting its higher-margin segments.

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Given the current market scenario, Xerox expects first-quarter 2016 GAAP earnings to be in the range of 5–8 cents per share and adjusted EPS in the range of 21–24 cents.

Xerox entered into a global reseller agreement with Top Image Systems, Ltd., innovator of intelligent content processing solutions, to give customers end-to-end automation solutions for industry-specific, content-driven processes. This innovative technology is expected to have a positive impact on the company’s quarterly results.

Also, during the first quarter, the company launched Xerox Health Outcome Solutions, a full lifecycle population health management solution at HIMSS16 (Healthcare Information and Management Systems Society). The new solution is expected to help providers and susceptible organizations to better manage the health of patient populations for successful outcomes. The launch of this product is likely to boost Xerox’s first-quarter revenues to a certain extent.

However, continuing appreciation of the U.S. dollar with respect to other currencies might weigh on Xerox’s international revenues and margins. The company garners a major portion of its aggregate revenues from Japan, and thus the currency headwind is likely to have a significant impact on the upcoming results.

Alongside, Xerox has been grappling with slow demand in its printing business for years, while its attempts to leverage the business process outsourcing market also failed to lend growth momentum to the company’s operations. The company also endured a number of slip-ups in its Medicare and Medicare information services for several government agencies across the U.S.

Earnings Whispers

Our proven model does not conclusively show that Xerox is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here:

Zacks ESP: Xerox has an Earnings ESP of 0.00%, as the Most Accurate estimate is in line with the Zacks Consensus Estimate of 29 cents.

Zacks Rank: Xerox’s Zacks Rank #3, when combined with a 0.00% ESP, makes surprise prediction difficult.Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some stocks you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

First Bancorp FBP has an Earnings ESP of +12.50% and a Zacks Rank #2. The company is expected to report first-quarter results on Apr 25.

Crane Co. CR has an Earnings ESP of +1.16% and a Zacks Rank #2. The company is expected to report first-quarter results on Apr 25.

Canadian National Railway Company CNI has an Earnings ESP of +1.47% and a Zacks Rank #1. The company is expected to report first-quarter results on Apr 25.

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CDN NATL RY CO (CNI): Free Stock Analysis Report
 
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CRANE CO (CR): Free Stock Analysis Report
 
XEROX CORP (XRX): Free Stock Analysis Report
 
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Zacks Investment Research