Xerox’s activist-backed bosses put returns first
Xerox fell short on revenue but beat estimates for profit on the back of cost-cutting in its first full quarter under a new management that is backed by activist investors Carl Icahn and Darwin Deason.
The US photocopier company, facing a long-running decline in its core business, reported net profit had roughly halved and said revenue fell 5.8% year on year to $2.35bn in the third quarter ended September 30, below an average analyst estimate of $2.42bn.
Free cash flow for the third quarter, however, rose and the company increased its 2018 share repurchase target to $700m from $500m and forecast for full-year free cash flow to between $900m and $1bn.
Xerox agreed in January to a $6.1bn merger with Fuji Xerox, its 56-year-old joint venture with Fujifilm. But the complex deal ran into strong opposition from Icahn and Deason and in May the photocopier pioneer scrapped the merger and handed management control to the activist investors.
Jeff Jacobson, the then CEO and the main architect of the deal with Fujifilm, and five other directors stepped down as part of a settlement with the investors. Xerox appointed John Visentin, who worked as a consultant to Icahn in the proxy fight, as CEO and vice-chair, and elected Icahn Enterprises chief Keith Cozza as chair.
“We are progressing on our priorities, which include optimising our operations for greater simplicity, re-energising our innovation engine and focusing on cash flow to drive increasing shareholder returns,” Visentin said in the results.
Shares of the company have fallen about 9% in 2018, but rose marginally in premarket trading on Tuesday.
Fujifilm, which was to take a majority stake in the combined company as part of the deal, has sued Xerox, winning an appeal last week that could give the Japanese company leverage to bring Xerox management back to the negotiating table.
In the wake of the aborted merger, Xerox said it would not renew its technology agreement with Fuji Xerox, and said it would start sourcing products from new vendors to lower its dependency on Fujifilm.
In response, the Japanese company said it was ready to compete against Xerox in AsiaPacific and challenge it in the US and Europe if it failed to renew its agreement in 2021.
Net income attributable to Xerox fell to $89m, or 34c per share, from $179m, or 68c per share, a year earlier, hurt by higher taxes. Excluding items, it reported earnings of 85c a share, beating the average analyst estimate of 78c, according to Refinitiv data.