Xerox’s Interim CEO Says Demand Still High Amid Recession Fears

‘Inflationary pressure is expected to continue in the near term, but we will offset a large portion of inflation-related cost growth with price increases for our products and services,’ says Xavier Heiss, chief financial officer and executive vice president.

Steve Bandrowczak, Xerox’s interim CEO

While fears of an economic downturn have emerged putting many in the channel on high alert, Xerox executives said they have not yet seen a slowdown in spending from clients.

“Rather, we continue to experience a recovery in demand from post-pandemic lows, particularly in equipment sales,” said Steve Bandrowczak, Xerox’s interim CEO, during the Norwalk, Conn.-based company’s FY22 Q2 earnings call on Tuesday.

“Further, our IT services and digital services businesses are positioned to benefit from growing levels of investment in digital transformation projects and hybrid workplace solutions, which are far less acceptable to a pullback in IT spending. And we are now starting to see signs of supply chain improvements and resilience.”

He said given the strength in demand across Xerox products and services, and margin improvements through price increases and cost reductions, the company is maintaining its 2022 revenue and free cash flow guidance.

Bandrowczak has been president and chief operations officer at Xerox since 2018 and was named interim CEO in June after CEO John Visentin died due complications of an ongoing illness.

Bandrowczak started the earnings call by saying a few words about Visentin.

“As we mourn this loss I am inspired and deeply humbled by how the Xerox family has come together and become stronger,” he said. “We will honor John by continuing to execute across the four strategic initiatives he articulated for returning Xerox to long-term, sustainable growth and by operating as one cohesive team to help propel us forward.”

[Related: XEROX CEO JOHN VISENTIN ON HP, INDUSTRY CONSOLIDATION AND HOW OFTEN HE SPEAKS WITH CARL ICAHN]

He said Visentin instilled a “one-team mentality” within the company which he said the team will use as inspiration to move forward and preserve his legacy.

While woes of an economic downtown start to surface, Xerox is also fighting back ongoing inflation and supply chain shortages.

“Inflationary pressure is expected to continue in the near term, but we will offset a large portion of inflation-related cost growth with price increases for our products and services,” said Xavier Heiss, chief financial officer and executive vice president, during the call. “The effects of our price increases will compound over time, particularly for our contractual business where price increases are elected at specific times throughout the year or upon contract renewal.

“Our backlog remains strong, and we still see demand that outpaced the supplies here. And clearly, customers are still planning a gradual return to the office,” he added.

He said increased COVID-19 vaccination rates across the globe are impacting return-to-office measures and print volumes saying that there was a “gradual recovery” during the second quarter. He also expects to see a gradual recovery of print volume during the second half of the year.

Xerox reported $1.75 billion in revenue for the quarter, down 2.6 percent year-over-year for the second quarter. The company also recorded a quarterly pre-tax loss of $5 million, compared with a profit of $99 million for the same period last year. Xerox reported adjusted operating income of $35 million for the quarter, compared with $126 million for the same period the year before.

“Like last quarter, adjusted operating income was negatively affected by supply constraints, broad-based inflationary pressure across our cost structure and investment in our new businesses,” he said. “We expect profitability to improve sequentially for the remaining two quarters of the year as supply chain costs normalize, particularly freight costs and through a leasing of product supply constraint which will not only improve equipment sales, but equipment gross margin as product mix normalizes.”

On Wednesday afternoon, Xerox stock traded at $16.42 per share, up about 1 percent for the day but down about 27 percent so far this year.