- Xerox Holdings ( NASDAQ: XRX ) shares fell sharply on Tuesday after the company reduced its free cash flow outlook due to greater working capital use to fund growth impacted significantly by supply chain and inflation headwinds.
- Q3 2022 Revenue of $1.75B (-0.6% Y/Y) missed consensus by $10M.
- Gross margin contracted to 31.8% from 32.4% in prior year quarter.
- Adjusted operating margin stood at 3.7% down 50 basis points year-over-year.
- The Connecticut-based consumer electronics company reported free cash flow use of $18M, lower by $99M year-over-year. Operating cash flow use was $8M, lower by $108M year-over-year.
- Non-GAAP EPS of $0.19 missed by $0.21.
- "Top-line strength and cost discipline resulted in sequential improvement to our adjusted operating margin this quarter, but profitability remains challenged by persistently high inflation and continued supply chain constraints," commented Xerox CEO Steve Bandrowczak.
- FY 2022 Guidance Cut : Revenue forecast now lowered from at least $7.1B to a range of $7B to $7.1B in actual currency for the full year. It compares with consensus of $7.1B.
- Free cash flow outlook cut significantly from at least $400M to at least $125M, citing slower-than-expected supply chain improvements and persistently high rates of inflation which has "negatively affected operating profit and a greater-than-expected use of working capital to fund growth of originations and operating leases at FITTLE and inventories."
- Return at least 50% of free cash flow to shareholders.
- JPMorgan Comments: Following Q3 2022 earnings report, JPMorgan said outlook reflects a “combination of worsening FX headwinds, slower-than-expected supply chain recovery, higher-than-expected inflationary pressures, greater working capital use to fund growth,” reported Bloomberg.
- The research firm maintains underweight rating on the stock while adding that Xerox Holdings ( XRX ) guidance, along with comments on the impact of the economic environment, “will likely drive investor skepticism in the near term.”
- XRX shares are down 12% in pre-market on Tuesday to trade at $15.91 vs. 52-week trading range of $13.07-$24.14.
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Xerox Holdings shares plunge as inflation prompts guidance cut, earnings miss: Q3