Anticipating Xerox Holdings Q2 Results: All My Hope Lies with Xerox!
Xerox Holdings Corporation, the global document technology company, is set to release its Q2 2025 earnings on July 31. The company's reinvention strategy, initiated following the acquisition of Lexmark, has faced significant challenges, as highlighted in the Q2 earnings period.
Financial Performance Trends
Xerox's core business has shown ongoing erosion, with guidance pointing towards flat-to-declining organic revenue despite prior cost-cutting efforts. In 2024, revenue fell by nearly 10% to $6.22 billion, with heavy losses reported (-$1.34 billion). EBITDA and EBIT forecasts suggest some improvement in 2025, with EBITDA around $584 million and EBIT at $389 million, but these are still below historical highs and raise concerns about profitability and sustainable cash flow.
Lexmark Acquisition Impact
Xerox is set to close its $1.5 billion acquisition of Lexmark in Q3 2025. The deal, priced at approximately 4.8x Lexmark's EBITDA pre-synergies, aims to bring vertical integration in A4 printers and expand exposure to growing Asian markets. However, the acquisition deal increased Xerox’s pro forma leverage to about 5.4x EBITDA, with medium-term goals to reduce leverage below 3.0x. Financing costs for the acquisition were higher than expected, including issuing high-yield debt notes (10.25% first-lien and 13.5% second-lien), as Xerox’s equity declined sharply and bond market conditions worsened. These high leverage and expensive debt raise financial risks amid a secularly declining printer industry with high fixed costs.
Execution and Progress
Execution has been described as "messy" with sales force disruptions in 1Q 2024 impacting productivity and delayed product launches due to inventory transitions. This indicates operational challenges in integrating Lexmark and scaling synergies quickly. The reinvention strategy, focused on shifting from a legacy printing business to a services-oriented model, has not yet stabilized revenue or proven successful in reversing the business decline.
Q2 2025 Earnings Preview
While specific Q2 2025 financial results were not yet published, expectations based on recent commentary show modest to no immediate top-line growth and financial pressure from acquisition-related costs and debt servicing. The company’s CEO, Steve Bandrowczak, is expected to discuss these results and progress towards reinvention during the webcast.
Innovations and Future Prospects
Despite the challenges, Lexmark offers AI-enhanced workflows in its latest 9-Series line, which includes intelligent document handling, automated translation, and redaction. Lexmark's printers are also equipped to be IoT devices that connect to cloud services, aiding in maintenance, remote fleet management, and analytics-driven optimizations for clients. The acquisition of ITsavvy was a good start for Xerox's pivot into IT solutions, but it remains small in terms of total revenues. The combined reach of the two companies will be over 200,000 clients in 170 countries, with 125 manufacturing and distribution facilities.
Looking Ahead
Cash flow is expected to come in lower over the next few quarters due to unforeseen issues that may arise, which will require more capital to set it all correctly. The company is aiming to double the savings achieved in 2024 in the next year and a half. From the management's guidance for 2025, the adjusted operating margin is set to improve to around 5%, with free cash flow to be in the range of $350m-$400m. Lexmark did around $3.7B in revenue last year, which will result in a 50% increase in Xerox's top line. The company's share price has been negatively affected by slow progress in reinvention and has been pummeled since the first coverage in April 2023. Despite this, the management remains optimistic about the future, with expectations of early signs of a turnaround and improving margins.
In light of Xerox's Q2 2025 earnings release on July 31, investors will be closely watching the financial performance trends, as the company's core business continues to show ongoing erosion, with projected flat-to-declining organic revenue. Additionally, the impact of Xerox's acquisition of Lexmark in Q3 2025 will be a critical factor, given the increased pro forma leverage and expensive debt, which raise financial risks amid a declining printer industry.
