Xerox (XRX)

Document technology company Xerox (NASDAQ:XRX) fell short of the markets revenue expectations in Q3 CY2025, but sales rose 28.3% year on year to $1.96 billion. Its non-GAAP profit of $0.20 per share was significantly above analysts’ consensus estimates.

Company Overview

Pioneering the modern office copier and inventing technologies like Ethernet and the laser printer, Xerox (NASDAQ:XRX) provides document management systems, printing technology, and workplace solutions to businesses of all sizes across the globe.

The Hardware & Infrastructure sector will be buoyed by demand related to AI adoption, cloud computing expansion, and the need for more efficient data storage and processing solutions. Companies with tech offerings such as servers, switches, and storage solutions are well-positioned in our new hybrid working and IT world. On the other hand, headwinds include ongoing supply chain disruptions, rising component costs, and intensifying competition from cloud-native and hyperscale providers reducing reliance on traditional hardware. Additionally, regulatory scrutiny over data sovereignty, cybersecurity standards, and environmental sustainability in hardware manufacturing could increase compliance costs.

Xerox competes with several major players in the document technology and office equipment space, including Canon, HP Inc., Ricoh, Konica Minolta, and FUJIFILM Business Innovation Corp. (formerly Fuji Xerox).

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $6.61 billion in revenue over the past 12 months, Xerox is one of the larger companies in the business services industry and benefits from a well-known brand that influences purchasing decisions. However, its scale is a double-edged sword because it’s harder to find incremental growth when you’ve penetrated most of the market. To expand meaningfully, Xerox likely needs to tweak its prices, innovate with new offerings, or enter new markets.

As you can see below, Xerox’s demand was weak over the last five years. Its sales fell by 2.6% annually, a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. Xerox’s annualized revenue declines of 3.3% over the last two years align with its five-year trend, suggesting its demand has consistently shrunk.

This quarter, Xerox generated an excellent 28.3% year-on-year revenue growth rate, but its $1.96 billion of revenue fell short of Wall Street’s high expectations.

Looking ahead, sell-side analysts expect revenue to grow 21% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and implies its newer products and services will spur better top-line performance.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Xerox’s high expenses have contributed to an average operating margin of negative 5% over the last five years. Unprofitable business services companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

Analyzing the trend in its profitability, Xerox’s operating margin decreased by 4.2 percentage points over the last five years. Xerox’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Xerox, its EPS declined by 15.6% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

We can take a deeper look into Xerox’s earnings to better understand the drivers of its performance. As we mentioned earlier, Xerox’s operating margin declined by 4.2 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Xerox, its two-year annual EPS declines of 43.6% show it’s continued to underperform. These results were bad no matter how you slice the data.

In Q3, Xerox reported adjusted EPS of $0.20, down from $0.25 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street is optimistic. Analysts forecast Xerox’s full-year EPS of negative $0.14 will flip to positive $1.54.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Xerox has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 5.8% over the last five years, slightly better than the broader business services sector.

Taking a step back, we can see that Xerox’s margin dropped by 3.4 percentage points during that time. Continued declines could signal it is in the middle of an investment cycle.

Xerox’s free cash flow clocked in at $131 million in Q3, equivalent to a 6.7% margin. This cash profitability was in line with the comparable period last year and its five-year average.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Xerox’s five-year average ROIC was negative 9.7%, meaning management lost money while trying to expand the business. Its returns were among the worst in the business services sector.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, Xerox’s ROIC decreased by 3.2 percentage points annually over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.

Xerox’s $4.41 billion of debt exceeds the $479 million of cash on its balance sheet. Furthermore, its 13× net-debt-to-EBITDA ratio (based on its EBITDA of $314 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Xerox could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope Xerox can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

It was good to see Xerox beat analysts’ EPS expectations this quarter. On the other hand, its revenue missed. Overall, this print had some key positives. Investors were likely hoping for more, and shares traded down 12% to $3.01 immediately following the results.

Updated: December 3, 2025 at 11:40 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Xerox.

We cheer for all companies making their customers lives easier, but in the case of Xerox, we’ll be cheering from the sidelines. For starters, its revenue has declined over the last five years. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its declining EPS over the last five years makes it a less attractive asset to the public markets.

Xerox’s P/E ratio based on the next 12 months is 3.2x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $3.75 on the company (compared to the current share price of $2.74).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.