What Happened?
Shares of document technology company Xerox (NASDAQ: XRX) fell 19.6% in the afternoon session after the company reported a significant loss for its second quarter and widely missed analyst profit forecasts. The company posted an adjusted loss of $0.64 per share, a stark contrast to the $0.07 profit analysts had predicted. While revenue slightly surpassed expectations, this earnings failure alarmed investors. The company's financial health showed clear signs of strain as its free cash flow, a key measure of cash generation, plunged to a negative $30 million from a positive $115 million in the prior year. This decline stemmed from falling gross margins, which were squeezed by tariffs and increased product costs. Revenue from the core Print and Other segment also contracted, which highlighted soft demand for the company's equipment.
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What Is The Market Telling Us
Xerox’s shares are extremely volatile and have had 36 moves greater than 5% over the last year. But moves this big are rare even for Xerox and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 2 months ago when the stock dropped 15.9% on the news that the company announced a reduction in its quarterly dividend to $0.025 per share, or $0.10 annually, to improve its balance sheet and ensure sufficient capital is available to finalize its acquisition of Lexmark. Despite the dividend cut, the company offered a positive outlook. It reaffirmed its 2025 financial guidance, signaling confidence in the business. Management also anticipated that the Lexmark acquisition would contribute to adjusted earnings per share and free cash flow, indicating that the deal is expected to strengthen profitability and liquidity. Additionally, the company projected at least $238 million in cost and revenue synergies from the acquisition, achievable within two years.
Xerox is down 50.2% since the beginning of the year, and at $4.12 per share, it is trading 63.7% below its 52-week high of $11.33 from August 2024. Investors who bought $1,000 worth of Xerox’s shares 5 years ago would now be looking at an investment worth $247.15.
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