What happened
Shares of printing technology leader Xerox (XRX 7.48%) plummeted in early trading on the Nasdaq Thursday -- down a staggering 17.8% as of 10:20 a.m. ET after the company reported a gargantuan earnings miss.
Heading into the first quarter of 2022, analysts had forecast that Xerox would earn at least a pro forma profit of $0.13 per share on $1.64 billion in sales. As it turned out, Xerox beat the sales number, delivering $1.67 billion. But instead of earning money, Xerox lost it -- $0.12 per share, pro forma.
And that was the good news.
Image source: Getty Images.
So what
The bad news is that when calculated according to generally accepted accounting principles (GAAP), Xerox's loss was actually much, much bigger: $0.38 per share. And even the sales beat wasn't entirely good news, because $1.67 billion in revenue actually represented a 2.5% decline for Xerox year over year.
Xerox did at least report positive free cash flow (FCF) for the quarter, but at a mere $50 million, FCF was cut in half from one year ago.
Now what
CEO John Visentin blamed "an increasingly volatile operating environment" for the loss, but insisted that "underlying demand for our products and services remains strong, pointing to rising backlog and "improving page volumes."
Looking ahead, he predicted Xerox will slowly turn things around this year, reversing declining sales to deliver about 1% revenue growth ($7.1 billion) by year-end, with free cash flow of $400 million. Granted, that would still represent a 29% decline in FCF year over year, but it would be better than the Q1 news -- and at current prices, this would value Xerox stock at roughly eight times current-year FCF.
Investors today seem to think even that's not cheap enough, but with Xerox paying a healthy 5.1% dividend yield and promising at least modest sales growth, I kind of wonder if maybe this stock has finally gotten cheap enough to buy.
