Business process and document management company Xerox Corp. XRX announced that it will book a pre-tax charge of roughly $385 million in the third quarter, connected to unfinished government health care projects in California and Montana. This would be the company’s first quarter in the red since 2010.
Medicaid, a state and federally funded program, offers health coverage to the poor and people over 65. Xerox has won contracts with several states to install new software platforms for processing Medicaid payments.
However, the company could not implement its platform on time in both Montana and California. Subsequently, a state legislative panel in Montana gave the company a vote of no confidence. State officials and Xerox then agreed upon a new deadline of May 2017, which is more than two years past the original deadline for the completion of the project.
But in July, the state received a report that forecasted that the completion of the project could take until 2023.
Thereafter, the company held discussions with clients in the two states concerning the status and scope of its current platform projects, and now Xerox believes that it might not fully complete the implementation of the platform in these states.
The state of Montana said that it will make sure that its taxpayers receive a high-tech system, are fairly compensated for any delays and do not pay for any services that are not delivered.
The Norwalk, CT-based company said it will continue to process Medicaid claims in these states using existing legacy systems, in order to ensure constant service for the states’ healthcare providers and constituents.
In order to incorporate these developments, Xerox will record a pre-tax charge of about $385 million in its third-quarter 2015 results, which comes to roughly $240 million post-tax or 22 cents per share. The charge reflects estimated settlement costs and other impact from these changes.
Thus, Xerox now expects to post a GAAP loss from continuing operations of 3 to 5 cents per share in the upcoming quarter. Excluding this charge, adjusted earnings per share are still expected to lie between 22 to 24 cents.
The Zacks Consensus Estimate for the third quarter currently lies within the above range, at 23 cents per share.
Xerox currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the business services space that are worth a look now include Liberty Tax, Inc. TAX, Core-Mark Holding Company, Inc CORE and comScore, Inc SCOR, each sporting a Zacks Rank #2 (Buy).
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