Premium information technology services company Xerox Corporation XRX is scheduled to report third-quarter 2015 results on Oct 26, before the market opens. Over the trailing four quarters, the company generated a positive average earnings surprise of 2.55%. Let’s see how things are shaping up prior to this announcement.
Factors to Affect Q3 Results
Xerox Corporation continues to work toward enhancing its brand value over time. Backed by a new operating model, the company expects to improve its aggregate margin for the third quarter. Over the last few months, the company has been implementing new restructuring programs and specialized cost-reducing initiatives to improve its operations. The company also expects its costs to decline in third-quarter 2015 led by reduction in acquisition expenses. Furthermore, amendments in the company’s existing capital allocation plans will likely support revenues and hence, margin expansion in the to-be-reported quarter.
Notwithstanding the above-mentioned initiatives, Xerox Corporation‘s financial results for third-quarter 2015 are faced with certain problems in its business. Reduced acquisition investments and poor performance of the Document Technology business in developing markets might hurt the company’s revenues for third-quarter 2015.
Also, continuing appreciation of the U.S. dollar with respect to the other currencies might weigh on Xerox Corporation‘s international revenues and margins. For instance, the company accrues a major portion of its aggregate revenue from Japan, and hence, depreciation of the Japanese Yen with respect to the U.S. dollar might hurt its top- and bottom-line results in the quarter under review.
Moreover, Xerox Corporation conducts its business in a highly competitive industry, which might lead to loss in market share and in turn, fall in revenues for the third quarter. At the same time, poor service delivery by any of the company’s third-party service providers such as primary software vendors and subcontractors might adversely affect its revenues.
Given the current market scenario, Xerox Corporation anticipates diluted earnings within 22–24 cents per share for third-quarter 2015. For full-year 2015, Non-GAAP earnings per share are expected to scale the lower end of the 95 cents to $1.01 range. Full-year cash flow from operations is projected within $1.7–$1.9 billion, while free cash is expected in a range of $1.3–$1.5 billion.
Earnings Whispers
Our proven model does not conclusively state that Xerox Corporation is likely to beat earnings in the upcoming quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for an earnings beat. That is not the case here as we will see below.
Zacks ESP: Xerox Corporation has an Earnings ESP of 0.00% for the quarter, as the Most Accurate estimate stands in line with the Zacks Consensus Estimate of 22 cents.
Zacks Rank: Xerox’s Corporation Zacks Rank #4 (Sell), when combined with 0.00% ESP, makes surprise predictions difficult.
Note that we caution against stocks with Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revision momentum.
Stocks to Consider
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
FTI Consulting, Inc. FCN, with an Earnings ESP of +1.92% and a Zacks Rank #2.
IHS Inc. IHS, with an Earnings ESP of +0.86% and a Zacks Rank #2.
Alliance Data Systems Corporation ADS, with an Earnings ESP of +1.36% and a Zacks Rank #3.
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