Xerox Shares Plunge Despite Earnings Beat as Revenue Disappoints

Xerox Holdings Corporation faced severe market punishment following its third-quarter earnings release, with shares plummeting nearly 10% despite the company delivering unexpected profitability. The dramatic sell-off highlights investor concerns about the company's fundamental business challenges amid disappointing revenue performance.

The technology company witnessed its stock price collapse by 9.18% to $3.11 during Thursday's trading session. This sharp decline brings Xerox dangerously close to its 52-week low of $3.02 recorded on October 16. Year-to-date, the equity has suffered devastating losses of 59.3%, reflecting a persistent downward trend that continues to worry market participants.

This negative response came despite Xerox reporting adjusted earnings per share of $0.20, significantly outperforming analyst expectations that ranged from -$0.18 to $0.04. The earnings beat, however, was completely overshadowed by revenue shortcomings.

Divergent Financial Performance

Xerox's quarterly report revealed a company moving in two different directions. While total revenue climbed 28.3% to $1.96 billion, primarily driven by the Lexmark acquisition, this figure still fell short of the $2.03 billion analysts had projected.

More concerning was the 8% decline in pro-forma revenue when excluding acquisition impacts. The company's adjusted operating margin contracted by 190 basis points to 3.3%, indicating pressure on profitability.

Key Financial Metrics:
- Adjusted EPS: $0.20 (substantially above forecasts)
- Revenue: $1.96 billion (below projections)
- Pro-forma revenue decline: 8%
- Operating margin: 3.3% (down 190 basis points)
- Free cash flow: $131 million (improved by $24 million)

Should investors sell immediately? Or is it worth buying Xerox?

Core Business Challenges Intensify

The market's harsh reaction stems from worrying trends in Xerox's fundamental operations. Sales of traditional Xerox equipment plummeted 14%, while installation activity dropped even more dramatically at 24%. The company continues to face headwinds from macroeconomic volatility and delayed government contracts, particularly affecting its legacy businesses.

Glimmers of Hope Amid Struggles

Despite these challenges, several developments suggest potential recovery pathways. The integration of Lexmark is progressing more smoothly than anticipated, with cost synergy targets increased by $50 million to $300 million. Management expects to realize over $125 million of these savings by the end of 2025.

Xerox's IT solutions division is expanding at double-digit rates, fueled particularly by public sector demand. The company is reentering the production inkjet market with its IJP900 system and has reduced its debt burden by $226 million since acquiring Lexmark.

Valuation Concerns and Analyst Sentiment

Xerox now trades at significant discounts to industry norms, with a price-to-sales multiple of just 0.1x compared to the sector average of 0.9x. The price-to-book ratio of 0.55x further underscores the market's pessimistic valuation.

Financial experts remain cautious, with most maintaining sell recommendations and an average price target of $4.50. The company's reduced free cash flow guidance for 2025—lowered from $250 million to $150 million—adds to concerns, as does the troubling trend of net losses deepening by 52.7% annually over the past five years.

With institutional investors holding 97% of shares and recent insider buying activity, a battle appears to be brewing between turnaround optimism and operational realities. The central question for investors remains whether Xerox represents a genuine bargain or merely a value trap in a rapidly evolving industry.