Xerox To Spend $100M In 2017 To Acquire More Multi-Branded Resellers, Get Into Emerging Markets
Xerox has set aside $100 million for mergers and acquisitions this year to convert more multi-branded dealers into Xerox-exclusive agents and gain a foothold in newer technologies.
The Norwalk, Conn.-based vendor said its Global Imaging Systems (GIS) business unit plans to continue buying independent, multi-branded resellers and converting them over to resellers focused exclusively on Xerox, according to Bill Osbourn, Xerox's chief financial officer.
These resellers typically only cost 1x their annual revenue, Osbourn said, and Xerox has historically enjoyed a very good return from these deals. Osbourn said the company will continue looking for opportunities to carry out multi-branded resellers acquisitions not only in the United States, but also internationally, in 2017 and beyond.
The company's GIS practice has enjoyed great success in the North American SMB channel and is looking to replicate that performance in Europe, according to Jeff Jacobson, Xerox's new CEO. Jacobson took over from Ursula Burns at the start of the year as the company completed the spinoff of its $6.7 billion business process services division, which was renamed Conduent.
"We have solid plans in place to capture opportunities in our strategic growth areas to change the trajectory of our company's top line and outperform the market over time," Jacobson told Wall Street analysts during the company's earnings call Tuesday.
Sales for the quarter ended Dec. 31 tumbled to $2.73 billion, down 7.5 percent from $2.95 billion the year prior. That fell short of Seeking Alpha expectations of $2.77 billion.
Net income from continuing operations plummeted to $181 million, or 17 cents per share, down 29 percent from $256 million, or 24 cents, the year prior. On a non-GAAP basis, earnings fell to $260 million, or 25 cents per share, down 8.8 percent from $285 million, or 27 cents per share, last year. This was in-line with Seeking Alpha's estimates.
For the full year 2016, Xerox's sales fell to $10.77 billion, down 6 percent from $11.47 billion the year prior. Net income sunk to $616 million, or 58 cents per share, down 27 percent from $848 million, or 77 cents per share, last year.
Xerox is also exploring acquisition opportunities beyond multi-brand dealers in areas such as workflow automation, software technologies. Osbourn cautioned, though, that Xerox will be forced to pay a higher multiple to carry out technology-centric deals.
Jacobson said he's looking for deals that will get Xerox into a market the company can't address well today. For instance, he would look favorably at acquiring technologies or businesses that would help Xerox get into the $60-to-$65 billion commercial offset print and packaging space.
Xerox is very focused in moving beyond printing on paper to printing on packaging, plastics and electronics, Jacobson said. Xerox has debated internally whether it should attack this emerging market through M&A, partnerships, or commercializing products itself, which would take more time.
Xerox also plans to continue making investments in the production and inkjet printing businesses to address ongoing challenges there, Jacobson said.
The company's fourth quarter equipment sales sunk to $677 million, down 12 percent from $770 million the year prior due to the timing of product launches, lower OEM sales, and lower sales to a Fuji Xerox partner. Equipment revenue was particularly weak in Europe, the company said, while the decline in North America was stable.
Meanwhile, Xerox's fourth quarter annuity revenue dipped to $2.06 billion, down 5 percent from $2.18 billion last year. Within that segment, Xerox's outsourcing, maintenance and rentals revenue sunk 7 percent due to a weak performance in the company's Document Technology segment.
Annuity revenue from supplies, paper and other sales declined 1 percent due to a modest decline in supplies and OEM sales, which was partially offset by improved paper sales and licensing revenue. And the vendor's annuity financing revenue tumbled by 8 percent because of a declining finance receivables balance reflecting lower equipment sales in prior periods.
For all of 2017, Xerox expects GAAP earnings from continuing operations of between 44 cents and 52 cents per share. Xerox shares closed down $0.02 (-0.22%) to $6.94 in trading on Tuesday.