Xerox (XRX) Stock: Here’s Why It’s Tanking

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Xerox Corp (NYSE: XRX)

Xerox is having an incredibly hard day in the market today, and for good reason. The company not only reported earnings under expectations, it released a separation and strategic formation update that seems to be concerning investors. Today, we’ll talk about both stories, how the market is reacting to the news, and what we can expect to see from XRX moving forward.

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XRX Reports Earnings

As mentioned above, Xerox reported its earnings for the first quarter before the opening bell this morning. While the company did beat expectations with regard to revenue, earnings was unfortunately not up to par. Here’s what we saw:

  • Revenue – In terms of revenue, XRX did relatively well in the quarter. During the first quarter, analysts expected that the company would generate revenue in the amount of $4.24 billion. However, the company came out about $60 million ahead at $4.3 billion.
  • Earnings – While revenue was relatively positive, the same can’t be said for earnings. During the first quarter, analysts expected XRX to generate earnings in the amount of $0.23 per share. However, the company actually reported earnings slightly below expectations at $0.22 per share.
  • Guidance – On top of reporting earnings, Xerox reported guidance for the second quarter of 2016. While analysts expect the company to generate earnings in the amount of $0.26 per share, XRX believes that earnings will come in just below or right in line with analyst expectations, between $0.24 per share and $0.26 per share.

Xerox Provided A Separation And Strategic Transformation Update

XRX hasn’t been doing its best over the past several months. As a result, the company announced that it would be separating into two independent, publicly-traded companies on January 29th. Today, the company provided a cost break down of the separation, and the costs associated with splitting the company in two seems to be concerning investors. According to the company, the separation will come with a one-time cost of between $200 million and $250 million that the company will incur throughout the year 2016. This includes $8 million that XRX spent in the first quarter. In terms of restructuring and related costs, the expenses are getting a bit higher. In fact, Xerox said that it is expecting total restructuring and related costs to come in around $300 million for the year 2016, and $126 million that was spent in the first quarter.

How The Market Reacted To The News

As investors we know that the news ultimately moves the market. Any time there is positive news released with regard to a publicly-traded company, we can expect to see gains in the value of the stock associated with the company. However, the news released by XRX is not being taken in a positive light by investors today. As a result, we’re seeing heavy declines on the stock. Currently (10:19), the stock is trading at $9.84 per share after a loss of $1.32 per share or 11.86% thus far today.

What We Can Expect To See Moving Forward

Moving forward, I have a relatively mixed opinion of what we can expect to see from Xerox. In the short term, I’m expecting to see further declines as investors continue to show their disappointment with regard to both earnings and restructuring costs. However, in the long run, I have a more bullish view of what we can expect to see from XRX. All in all, I believe their restructuring plans are overwhelmingly positive as they will allow the company to focus two teams on two core goals. All in all, the stock looks great for the long run, but you may want to wait for the declines to reach support before buying if you’re considering this as an investment choice.

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What Do You Think?

Where do you think XRX is headed and why? Let us know your opinion in the comments below!

[Image Courtesy of Wikimedia]

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