Xerox To Launch Operations Review After $34M Third-Quarter Loss

After reporting its worst quarter of revenue since 2009, Xerox Global Services said it will launch a review of its operations to determine how the solution provider can find the road back to sales growth.

The Norwalk, Conn.-based company -- No. 7 on CRN's 2015 Solution Provider 500 -- reported a net loss of $34 million for the third quarter, compared with net income of $266 million during the third quarter of 2014, a $300 million swing. But the loss was in line with company expectations.

Xerox also reported a 10 percent drop in third-quarter revenue -- also in line with expectations. Its technology and services divisions also suffered steep percentage losses.

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Xerox, which released its third-quarter numbers before U.S. stock markets opened Monday, reported $4.3 billion in total revenue, compared with $4.8 billion the company reported in the third quarter of 2014.

Xerox stock fell about 3 percent during trading Monday, to close at $10.03.

The company reported that revenue in its technology division fell for the fourth consecutive quarter, dropping $200 million, from $2 billion in the third quarter last year to $1.8 billion, a 10 percent plunge.

Meanwhile, Xerox’s services division, which accounts for 57 percent of company revenue, dropped 8 percent, or $200 million, from $2.6 billion to $2.4 billion today.

According to Xerox Chairman and CEO Ursula Burns, the company's board of directors has approved a review of operations -- including its business portfolio and capital allocation -- in an attempt to grow sales.

"We are looking into what we can do differently," she said, adding that the board will be looking into many options, but selling the company is not one of them.

Questioned during the company's earnings call Monday with analysts, Burns declined to confirm if the review was going to include outside consultants.

Xerox also said it decided not to complete two contracted health-care-related projects in California and Montana because they became too costly. Xerox contracted with the states to implement their Health Enterprise Medicaid platforms, designed to process Medicaid claims.

That decision to not finish the implementations will cost the company $385 million pre-tax. However, according to a research brief from Morgan Stanley, that could help Xerox’s margins going forward.

The company said it will still deliver on parts of the contracts and continue to process Medicaid claims for the states using legacy software systems so that service for the state's health-care providers and constituents will continue uninterrupted.

The Morgan Stanley brief said Xerox has been ’perpetually burned by higher costs and longer timelines related to the implementation of these contracts," the brief said.

"We could see improvement in services margins as the burden of these costs [is] removed from future quarters," according to the brief.

Xerox reported having $804 million in cash in the quarter, but that also represented a sharp drop from $1.4 billion it had in the third quarter of 2014.

PUBLISHED OCT. 26, 2015