Xerox's Q2 2024 Earnings and Strategic Reinvention: Can Cost-Cutting Sustain Long-Term Growth in a Declining Revenue Environment?

Xerox Holdings Corporation (NYSE: XRX) has long been a bellwether for the challenges of legacy industries in the digital age. Its Q2 2024 earnings report, released in July 2025, underscores the company's struggle to balance cost-cutting measures with the need for innovation in a declining revenue environment. With total revenue falling 10% year-over-year to $1.58 billion, driven by reduced equipment sales and strategic exits from low-margin segments, Xerox's reinvention strategy is now under intense scrutiny. Investors must assess whether its aggressive operational restructuring can offset structural headwinds and position the company for sustainable growth.

The Financial Pain Points: A Shrinking Revenue Base

Xerox's Q2 results reflect a broader trend: the erosion of demand for traditional printing hardware and services. Equipment sales plummeted 15.2% to $356 million, while post-sale revenue (maintenance and consumables) fell 8.4% to $1.2 billion. These declines are not merely cyclical but structural, as businesses increasingly digitize workflows and reduce reliance on physical documents. The company's decision to exit non-strategic revenue streams—such as paper sales and IT endpoint device placements—has accelerated this decline but is a necessary step to focus on higher-margin offerings.

GAAP net income improved to $18 million in Q2 2024, up from a $61 million loss in Q2 2023, due to a one-time charge in the prior year. However, adjusted net income of $41 million (down 34.1% YoY) and adjusted operating income of $85 million (a $22 million drop) highlight the fragility of Xerox's current model. Free cash flow, however, rose to $115 million, up $27 million YoY, driven by working capital improvements and cost discipline. This cash flow resilience is critical for sustaining reinvention efforts.

The Cost-Cutting Playbook: Margin Expansion Amid Revenue Pressure

Xerox's restructuring initiatives, including a 15% workforce reduction (3,000 employees) and $112 million in 2024 restructuring costs, have trimmed Selling, General, and Administrative (SG&A) expenses. These cuts have stabilized adjusted operating margins at 5.4% in Q2 2024, up from 4.0% in Q2 2023. However, the company's revised full-year guidance—revenue decline of 5–6% and adjusted operating margin of at least 6.5%—suggests that further margin compression is likely without a rebound in core sales.

The historical effectiveness of Xerox's restructuring efforts offers mixed signals. In 2023, a $78 million after-tax restructuring charge led to a 170-basis-point margin improvement, despite a 3.1% revenue decline. This demonstrated that cost discipline can drive profitability even in shrinking markets. However, the 2024 guidance reflects a more cautious outlook, with adjusted operating income expected to fall short of 2023 levels. The challenge lies in sustaining these efficiencies while investing in digital transformation, a delicate balancing act for any legacy business.

Strategic Acquisitions and Digital Bet: A Path to Relevance

Xerox's long-term viability hinges on its ability to pivot to digital services. The 2024 acquisition of ITsavvy and the pending Lexmark deal (expected to close in H2 2025) are designed to bolster its IT services division. These moves aim to diversify revenue streams and capitalize on the growing demand for managed IT solutions. Lexmark, in particular, is expected to add $1.6 billion in annual revenue, potentially offsetting declines in the print segment.

Yet, the success of these acquisitions depends on integration execution. Xerox must avoid the pitfalls of overpaying for synergies and ensure that ITsavvy and Lexmark's operations align with its reinvention goals. The company's 2025 guidance—low single-digit revenue growth in constant currency and free cash flow of $350–400 million—suggests confidence in this strategy. However, investors should monitor how well these acquisitions translate into organic growth, as inorganic revenue boosts may mask underlying weaknesses in the core business.

Key Risks and Opportunities for Investors

1. Structural Decline in Print Revenue: Xerox's core print business is in secular decline. Even with cost-cutting, sustained revenue losses could erode market confidence.
2. Execution Risks in Digital Transition: The ITsavvy and Lexmark acquisitions represent a $1.2 billion bet on digital services. Delays in integration or underperformance could stall reinvention efforts.
3. Cash Flow Volatility: While free cash flow has improved, it remains vulnerable to macroeconomic shifts, such as higher interest rates or reduced corporate spending on IT.

Investment Thesis: A High-Risk, High-Reward Proposition

Xerox's strategic reinvention is a work in progress. The company's commitment to digital transformation and operational efficiency is commendable, but the path to profitability is fraught with challenges. For investors willing to take a long-term view, XRX offers an intriguing opportunity: a declining but cash-generative business with a clear roadmap to pivot into high-growth IT services.

However, the stock's current valuation—trading at a 20x multiple on adjusted earnings—reflects skepticism about its ability to execute. A more compelling entry point may emerge if Xerox's 2025 guidance is met and Lexmark integration delivers tangible synergies. Conversely, a failure to stabilize the print segment or delays in digital adoption could lead to further value erosion.

Conclusion

Xerox's Q2 2024 earnings reinforce the reality that legacy businesses must evolve or perish. While cost-cutting has provided short-term relief, the company's long-term viability depends on its ability to transform into a digital-first enterprise. Investors should closely monitor key metrics: free cash flow sustainability, the success of ITsavvy and Lexmark integrations, and the trajectory of adjusted operating margins. For those with a high-risk tolerance and a multi-year horizon, XRX could be a speculative play on a company fighting to reinvent itself in a post-print world. For others, the risks may outweigh the potential rewards until clearer progress emerges.