Xerox Split Overshadows Positive Q4 Earnings News

Xerox beat the Street in the fourth quarter, but the company's forthcoming split is the talk of the town.

Xerox split

Xerox today announced its fourth-quarter 2015 financial results, but during an earnings call this morning, the company's announced split took center stage.

In October, Xerox had kicked off a sweeping structural review to determine the future of the company, said Ursula Burns, chairman and CEO of the document printing giant. "It became clear through this analysis that the benefits of separation outweighed the benefits of maintaining the current structure," she said, noting that the decision to split into a document technology company and another firm focused on business process outsourcing (BPO) was unanimously approved by the company's board of directors.

The document technology portion of Xerox's business, with its 40,000 employees, generated $11 billion in revenue during fiscal year 2015. The BPO side—"already a leader in a growing market," according to Burns—racked up $7 billion in sales with 104,000 employees.

Explaining the rationale behind the decision to split up Xerox, Burns said both the document technology and BPO sides of the business are "each facing different market and client realities," echoing some of the factors that influenced HP's decision to separate into two companies.

While Xerox's document technology segment is beset by a "modest secular decline in its markets," the BPO business operates "in a growing, but rapidly evolving market." Sales in the segment were down 13 percent in the fourth quarter, according to the company. The BPO is being roiled by cloud-based software-as-a-service (SaaS) delivery models, robotic process automation and increased customer demand for analytics-driven operational insights, said the CEO.

Xerox is also seeking a trait that often gets lost as companies get bigger: agility. Burns argued that its BPO business "needs to be highly adaptive, able to innovate and adopt technology quickly and shift its portfolio to address the fast-changing needs of its clients."

The CEO said she expects the transaction "to be completed by the end of 2016" and pledged to keep investors informed about key milestones in the upcoming months.

EPS Exceeds Expectations

Meanwhile, Xerox closed out its 2015 fiscal year with some upbeat news.

The company reported adjusted earnings per share (EPS) of 32 cents in the quarter ending Dec. 31, above the expectations of both Xerox and financial analysts. Wall Street had expected Xerox to weigh in with 28 cents per share for the fourth quarter of 2015. Revenue was $4.65 billion for the quarter, down 8 percent from the same period in 2014.

For all of 2015, Xerox reported total revenue of $18.2 billion, including $10.3 billion from its services segment and $7.4 billion from its printer and managed printing services unit. Adjusted net income was $1.1 billion.

"In the face of a challenging environment, our Services segment drove sequential improvement in margin and double-digit year-over-year signings growth," said Burns in a Jan. 29 statement. "Similarly, Document Technology was the industry equipment sales revenue market share leader for the 24th consecutive quarter and, through our continued focus on performance and productivity, maintained its strong margins."

Pedro Hernandez

Pedro Hernandez

Pedro Hernandez is a contributor to eWEEK and the IT Business Edge Network, the network for technology professionals. Previously, he served as a managing editor for the network of...