Xerox's Q1 2025 Earnings: Navigating a Stormy Horizon?

Investors preparing for Xerox Holdings Corporation’s (NYSE: XRX) Q1 2025 earnings release on May 1, 2025, face a stark reality: the firm’s financial trajectory is increasingly fraught with challenges. With consensus estimates pointing to a deeply disappointing performance, the question is not whether Xerox will miss expectations again, but by how much—and whether the broader structural issues plaguing the company can be addressed before it’s too late.

Earnings Estimates: A Downward Spiral

The Zacks Consensus Estimate for Q1 2025 EPS is a paltry $0.02, a 66.7% decline from the $0.06 reported in Q1 2024. This stark revision reflects analysts’ growing skepticism: over the past 30 days, EPS estimates have been cut by 7.6%, with the Zacks Earnings ESP model predicting a -250% surprise probability—a red flag signaling an even wider miss than already anticipated.

This comes after four consecutive quarters of EPS misses, including a 30.77% shortfall in Q3 2024, when the company reported $0.25 vs. a $0.51 consensus. The trend suggests systemic issues, from cost overruns to execution failures in its "Reinvention" strategy, which aims to pivot from hardware to software and services.

Revenue: Flatlining Growth Amid Headwinds

Revenue is expected to reach $1.52 billion, a 1.2% year-over-year increase, but this masks deeper problems. The figure is flat in nominal terms compared to Q1 2024, as prior-year results included a 12.4% revenue decline. Management attributes the stagnation to strategic shifts, including geographic simplification and the cessation of High End Production print equipment manufacturing, which are projected to create a 400 basis point drag on 2025 revenue growth.

While peers like IBM managed flat revenue but beat estimates in Q1 2025, Xerox’s trajectory is diverging. The company’s 2025 full-year guidance for low single-digit revenue growth in constant currency hinges on integrating its ITsavvy acquisition and preparing for the pending Lexmark merger—both of which remain unproven catalysts.

Strategic Crossroads: Lexmark, Debt, and Margins

The Lexmark acquisition, expected by mid-2025, could be a lifeline. However, it also raises risks: combining the two firms’ operations and managing $4.5 billion in debt (as of 2024) will test Xerox’s financial discipline. Meanwhile, the adjusted operating margin target of 5.0% for 2025 is achievable only if cost savings offset rising product expenses.

Free cash flow is projected to drop to $350–$400 million, down from $467 million in 2024, due to reduced finance receivable run-off. This weakens Xerox’s ability to fund growth or deleverage, compounding investor anxiety.

Conclusion: A High-Risk Gamble

Xerox’s Q1 2025 results are unlikely to inspire confidence. With a Zacks Rank #5 (Strong Sell) and a stock price down 10.2% over the past month (vs. a 2% sector decline), the market has already priced in disappointment. The consensus EPS of $0.02 faces a high probability of missing further, especially given the Zacks ESP’s dire prediction.

Investors must weigh two scenarios:
1. The Pessimistic View: Persistent operational underperformance, a delayed Lexmark integration, and margin pressures could push shares lower, especially if free cash flow disappoints.
2. The Optimistic View: A disciplined execution of cost cuts and a successful Lexmark merger might stabilize the business by late 2025.

However, the data leans heavily toward caution. With a five-year EPS CAGR of -19% and a stock trading at just 0.3x its average analyst price target, Xerox’s recovery hinges on near-term execution—a tall order given its recent track record. For now, the storm clouds loom large.

Investors would be wise to await the May 1 earnings call for clarity on Lexmark’s synergies and margin improvements before taking a position. Until then, Xerox remains a high-risk bet on a turnaround that has yet to materialize.