Xerox Holdings Corp. (XRX) delivered a somewhat contradictory quarter on Thursday: revenue grew impressively, but profitability took a beating. The document management and technology services provider posted fourth-quarter results that showed 25.7% year-over-year revenue growth to $2.03 billion, yet still fell short of the analyst consensus estimate of $2.11 billion.
On a constant currency basis, revenue climbed 23.6%. But here's where things get uncomfortable: the company reported an adjusted loss of 10 cents per share, a significant miss compared to analysts' expectations for a 10-cent profit. That's a 20-cent swing and not the direction anyone was hoping for.
The revenue picture looked solid on the surface. Equipment segment sales rose 23.4%, while post-sale revenue, which includes services, consumables, and financing, increased 26.5%. But scratch beneath the surface and the margin story gets messy fast.
Margin Pressure Hits Hard
Gross margin contracted by 250 basis points to 28.6%. The real pain showed up in equipment gross margin, which plummeted 1,540 basis points to just 12.0%. That's a staggering drop. Post-sale margin provided some relief, rising 130 basis points to 33.7%, but it wasn't nearly enough to offset the equipment carnage.
Adjusted operating income barely budged, slipping to $102 million from $104 million a year ago, while the operating margin narrowed 140 basis points to 5.0%.
Cash generation also weakened. Xerox ended the quarter with $512 million in cash and equivalents. The company generated $208 million in operating cash flow during the quarter, down $143 million from a year ago. Free cash flow came in at $184 million, down $150 million year-over-year.
CEO Steve Bandrowczak pointed to a challenging macro environment marked by ongoing government uncertainty and rising memory costs as headwinds. Those memory costs, in particular, seem to be squeezing equipment margins hard.
On a brighter note, Bandrowczak said the Lexmark integration is progressing ahead of plan, with teams delivering measurable synergies. He noted that these efforts drove better-than-expected operating income and free cash flow in the quarter. As demand trends start to stabilize, he said Xerox is seeing new opportunities emerge, resulting in a larger pipeline than a year ago.
2026 Outlook
Looking ahead, Xerox expects 2026 revenue above $7.5 billion. Wall Street analysts had projected revenue of $7.899 billion, so that guidance lands below expectations. The company projected adjusted operating income of $450 million to $500 million and free cash flow of close to $250 million.
Xerox Holdings shares were down 1.29% at $2.29 during premarket trading on Thursday. The stock is trading near its 52-week low of $2.10, according to market data.
