July 28, 2014
Xerox built a strong presence in the Rochester area for their paper copiers and printers; they have been working to transition towards a company focused on document management, IT services, and bill processing. Last week, Xerox reported earnings for the second quarter of 2014. The story of year-over-year declining revenues seems to be getting old--yet, was still a major focus for the quarter ending on June 30th.
The transformation from a company focused on copiers and printers to business services has faced many challenges. The demand for copiers and printers has been falling faster than anticipated--yet, it remains a highly profitable avenue for the company. Xerox's business services segment is growing, but not enough as to offset the sharp declines in printing.
For this past quarter, profit margins in the business services area fell particularly, in part, due to the state of Nevada firing Xerox as the operator of its state health insurance. Despite this setback, management remains confident that government health-care-related contracts will continue to increase moving into the future. In particular, the future could potentially include a contract to run New York State's Medicaid system.
Despite the same story of a profitable company with declining revenues, we see a company that is changing their business to accommodate to the landscape of the market--the same cannot be said for Eastman Kodak. Xerox still faces significant costs for transitioning and expanding their services business, there remains the potential for them to break that boring story, to right the ship, and become a profitable company with expanding revenues.
Ethan Wade, Financial Advisor
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).