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Xerox shares rise after Q4 report, decision to split company

The Street is reacting positively to Xerox Corp.’s early announcement it plans to split into two public companies.

Shares of Xerox (NYSE: XRX) were trading midday around $9.85, up nearly 7 percent from Thursday’s close of $9.23.

The company announced Friday morning the split, which would create:

  • A document technology company that will continue to be a global leader in document management and document outsourcing with roughly $11 billion in 2015 revenue; and
  • A business process outsourcing firm that will have $7 billion in 2015 revenues.

Xerox employs roughly 6,400 local workers—1,600 at Xerox Square downtown and 4,800 in Webster. A Xerox spokesperson said there is no way to speculate on local employment numbers as a result of the company split.

Xerox also announced a three-year strategic transformation program targeting a cumulative $2.4 billion in savings across all its segments. The company said it expects $700 million in annualized savings in 2016.

The next step for the company is to begin separating into the two companies while it finalizes the transaction structure, company officials said. Xerox aims to complete the separation by year-end.

“Today Xerox is taking further affirmative steps to drive shareholder value by announcing it will separate into two strong, independent, publicly traded companies,” said Ursula Burns, chairman and CEO. “These two companies will be well positioned to lead in their respective rapidly evolving markets and capitalize on the opportunities that now exist to expand margins and increase market share.”

Xerox’s future had been discussed since billionaire investor Carl Icahn became the company’s second-largest shareholder in November.

It was announced Friday that Icahn would have a leading role in the development of the business process outsourcing business. Once split, the business process outsourcing firm will have a board of directors composed of nine members: six selected by Xerox and three selected by Icahn.

In addition, in connection with the planned separation, Xerox agreed a committee of its board of directors will begin searching for an external candidate to be CEO of the business process outsourcing company and to allow a person selected by Icahn to observe and advise the committee in that search process.

A leader for the document technology company will be announced at a later date, Xerox said.

One local analyst said the split shows Xerox’s acquisition of Affiliated Computer Services Inc. of Texas did not work. Xerox acquired the services firm in a $6.4 billion cash and stock deal.

“The merger never fully integrated with the Xerox business model and provided little or no value to shareholders,” said Dom Pullano, registered principal and branch manager at PCM Associates Ltd., in a statement. “The company has effectively remained a cyclical business with consistent cash flow but not a growth company that defined its identity during the previous century.”

Xerox also posted fourth-quarter 2015 adjusted earnings per share of 32 cents that topped Street expectations.

Analysts polled by Thomson Reuters expected Xerox to report earnings per share of 28 cents.      

The company reported diluted earnings from continuing operations of 27 cents, down from 30 cents a share a year ago. Net income from continuing operations attributable to Xerox was $285 million, down from $349 million.
The company logged revenues of $4.65 billion in the quarter, down 8 percent, or 5 percent in constant currency, Xerox said. Analysts had expected sales to be down 6 percent for the quarter to $4.7 billion.

“We delivered solid performance in the fourth quarter, with earnings that were above our expectations, as a result of the progress we are making across both segments in optimizing our operating models,” Burn said.
Xerox generated $878 million in cash flow from operations during the fourth quarter and ended 2015 with a cash balance of $1.4 billion.

(c) 2016 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email rbj@rbj.net.


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