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Xerox says demand still high despite recession fears

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Xerox says demand still high despite recession fears

While fears of an economic downturn have emerged putting many in the channel on high alert, Xerox executives said they have not yet seen a slowdown in spending from clients.

“Rather, we continue to experience a recovery in demand from post-pandemic lows, particularly in equipment sales,” said Steve Bandrowczak, Xerox’s interim chief executive, during the company’s FY22 Q2 iearnings call.

“Further, our IT services and digital services businesses are positioned to benefit from growing levels of investment in digital transformation projects and hybrid workplace solutions, which are far less acceptable to a pullback in IT spending," Bandrowczak said.

And we are now starting to see signs of supply chain improvements and resilience,” he added.

He said given the strength in demand across Xerox products and services, and margin improvements through price increases and cost reductions, the company is maintaining its 2022 revenue and free cash flow guidance.

Bandrowczak has been president and chief operations officer at Xerox since 2018 and was named interim chief executive in June after John Visentin died due complications from an ongoing illness.

While woes of an economic downtown start to surface, Xerox is also fighting back ongoing inflation and supply chain shortages.

“Inflationary pressure is expected to continue in the near term, but we will offset a large portion of inflation-related cost growth with price increases for our products and services,” Xavier Heiss, chief financial officer and executive vice president, said.

“The effects of our price increases will compound over time, particularly for our contractual business where price increases are elected at specific times throughout the year or upon contract renewal," he added.

“Our backlog remains strong, and we still see demand that outpaced the supplies here. And clearly, customers are still planning a gradual return to the office,” Heiss continued.

Heiss said increased COVID-19 vaccination rates across the globe are impacting return-to-office measures and print volumes saying that there was a “gradual recovery” during the second quarter.

He also expects to see a gradual recovery of print volume during the second half of the year.

Xerox reported US$1.75 billion in revenue for the quarter, down 2.6 per cent year-over-year for the second quarter.

The company also recorded a quarterly pre-tax loss of US$5 million, compared to a profit of US$99 million for the same period last year.

Xerox reported adjusted operating income of US$35 million for the quarter, compared to US$126 million for the same period the year before.

“Like last quarter, adjusted operating income was negatively affected by supply constraints, broad-based inflationary pressure across our cost structure and investment in our new businesses,” Heiss said.

“We expect profitability to improve sequentially for the remaining two quarters of the year as supply chain costs normalize, particularly freight costs and through a leasing of product supply constraint which will not only improve equipment sales, but equipment gross margin as product mix normalises,” he said.

On Wednesday afternoon, Xerox stock traded at US$16.42 a share, up about one per cent for the day but down about 27 per cent so far this year.

 

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