Xerox 2025 Q2 Earnings Misses Targets as Net Income Drops 688.9%

Xerox (XRX) reported its fiscal 2025 Q2 earnings on Jul 31st, 2025. Xerox's Q2 2025 results fell short of expectations, with the company reporting a significant loss per share of $0.87, compared to a profit of $0.12 per share in the same quarter last year. This marks an 825.0% negative change. The company adjusted its guidance by lowering its expected free cash flow to $250 million, a significant drop from the previous range of $350 million to $400 million. Despite revenue slightly surpassing analyst estimates, the overall financial health showed signs of strain, leading to a sharp decline in stock prices post-earnings release.

Revenue

Xerox's revenue for Q2 2025 experienced a slight decline of 0.1% to $1.58 billion compared to the previous year's quarter. The sales segment contributed $665 million, while the services, maintenance, rentals, and other segments accounted for $911 million, culminating in the total revenue of $1.58 billion.

Earnings/Net Income

Xerox reported a net loss of $106 million in Q2 2025, a downturn of 688.9% from the $18 million net income reported in Q2 2024. The earnings per share swung to a loss of $0.87 from a profit of $0.12, indicating a challenging financial period for the company.

Price Action

The stock price of Xerox has plummeted 19.80% during the latest trading day, has plummeted 31.70% during the most recent full trading week, and has plummeted 23.15% month-to-date.

Post Earnings Price Action Review

The approach of purchasing Xerox shares 30 days post-earnings release following a quarter-over-quarter revenue increase yielded moderate returns but fell short of the benchmark over the past three years. The strategy achieved a compound annual growth rate (CAGR) of 3.02%, delivering a total return of 11.76% against a benchmark return of 35.32%. Although the Sharpe ratio stood at 0.28, indicating a reasonable risk-adjusted return, the maximum drawdown was 0.00%, suggesting the strategy had no downside risk. The strategy's volatility was relatively high at 10.65%, highlighting the inherent market fluctuations. Overall, while the strategy showed some positive outcomes, it failed to outperform the broader market, emphasizing the need for careful consideration of investment approaches.

CEO Commentary

Steve Bandrowczak, Chief Executive Officer at Xerox, emphasized that the completion of the Lexmark acquisition represents a significant milestone in the company’s Reinvention strategy, establishing Xerox as a vertically integrated market leader with enhanced technology solutions. He noted that the second-quarter results demonstrate improved financial resiliency, driven by growth in IT and Digital Solutions, which contributed to stable revenue. Bandrowczak highlighted a continued focus on cost management to maintain profitability amidst a challenging operating environment and expressed a commitment to executing Reinvention through the integration of Lexmark, aiming to lay a foundation for future growth.

Guidance

The company expects revenue growth of 16-17% in constant currency, with an adjusted operating margin projected to be around 4.5%. Free cash flow is anticipated to be approximately $250 million, reflecting the inclusion of Lexmark's financial results starting July 1. The revised guidance accounts for expected tariff-related expenses of $30 to $35 million and incorporates a more cautious outlook on Print equipment demand due to ongoing tariff and government policy uncertainties.

Additional News

In recent weeks, Xerox has been actively pursuing strategic initiatives to bolster its market presence. The company announced its intention to acquire Lexmark, a move that is anticipated to enhance Xerox's capabilities in IT and digital services, aligning with its Reinvention strategy. Additionally, Xerox has experienced significant changes at the executive level, with Steve Bandrowczak continuing to lead the company as CEO, emphasizing the importance of the Lexmark acquisition in achieving long-term growth objectives. Furthermore, Xerox faced a critical decision regarding its dividend policy, opting to reduce its quarterly dividend to $0.025 per share to strengthen its balance sheet and ensure adequate capital for the acquisition. These developments indicate Xerox's commitment to strategic growth and financial restructuring in a challenging market environment.