Xerox (NYSE:XRX) announced today its third-quarter financial results and reaffirmed its full-year guidance. The company reported continued progress on its strategic transformation program and remains on track to complete its planned separation into two independent, publicly traded companies by year end.

“In an important period for Xerox when our separation-related activities ramped up significantly, we delivered solid financial results despite challenging market conditions. This reflects our commitment to executing on all aspects of our ambitious agenda, including our strategic transformation and achieving our 2016 financial objectives,” said Ursula Burns, Xerox chairman and chief executive officer.

Xerox reported third-quarter GAAP EPS from continuing operations of 17 cents, up 21 cents compared to the same period last year, primarily due to a prior-year charge related to the company’s Health Enterprise strategy change. Adjusted EPS of 27 cents was within the company’s guidance and in line with the same period last year. Adjusted EPS excluded $105 million or 10 cents per share of after-tax costs related to the amortization of intangibles, restructuring and related costs, certain retirement related costs and separation costs.

Burns added, “As we move toward 2017, we remain intensely focused on implementing our strategic priorities to position both new companies for improved profitability and long-term growth that will create sustainable value for our shareholders.”

Third-Quarter Results

Third-quarter total revenue of $4.2 billion was down 3 percent year-over-year, or 4 percent on an adjusted constant currency basis.

Operating margin of 9.2 percent was down 0.2 percentage points year-over-year. Gross margin and selling, administrative and general expenses were 31.0 percent and 19.6 percent of revenue, respectively.

Services segment revenue of $2.4 billion was up 1 percent, or down 2 percent on an adjusted constant currency basis. Services margin improved 1.6 percentage points year-over-year on an adjusted basis to 9.4 percent, driven by significant productivity and cost savings across the company’s BPO business.

Document Technology revenue was $1.6 billion, down 9 percent or 7 percent in constant currency. Document Technology margin remained strong at 13.1 percent, down 0.8 percentage points year-over-year but up 0.5 percentage points sequentially, reflecting continued productivity gains and cost savings from the company’s strategic transformation program.

Xerox generated cash flow from operations of $370 million during the third quarter, up from $271 million in the same quarter last year. The company ended the quarter with a cash balance of $1.4 billion.

Separation Update

Xerox continued its progress toward the planned separation and remains on track to complete it by year end. Highlights include:

• Xerox’s credit ratings remain investment grade following recent updates from the major rating agencies. Conduent Incorporated is expected to be a high non-investment grade rated company following the separation. These ratings are in line with management’s expectations.
• Brian Webb-Walsh will serve as chief financial officer of Conduent, upon completion of the separation. Webb-Walsh is currently the CFO for Xerox Services and has twenty years of experience with the company in various finance roles.
• Several amendments to Conduent’s Form 10 registration statement have been filed with the U.S. Securities and Exchange Commission. They included additional information about Conduent’s pro-forma capitalization and financial results and named the majority of its executive officers and seven out of the nine directors that will form Conduent’s board.
• The company unveiled the new Conduent logo and visual identity which will distinguish the brand and provide a means for describing the company’s positioning, business model and key stakeholders. Conduent’s stock will trade on the New York Stock Exchange (NYSE) under the symbol “CNDT.” Xerox will continue to trade on the NYSE as “XRX.”

Xerox is helping change the way the world works. By applying our expertise in imaging, business process, analytics, automation and user-centric insights, we engineer the flow of work to provide greater productivity, efficiency and personalization. Our employees create meaningful innovations and provide business process services, printing equipment, software and solutions that make a real difference for our clients and their customers in 180 countries. On January 29, 2016, Xerox announced its plans to separate into two independent, publicly traded companies – Xerox Corporation, which will be comprised of the company’s Document Technology and Document Outsourcing businesses, and Conduent Incorporated, a business process services company. Learn more at www.xerox.com.

2016 Guidance

For fourth-quarter 2016, Xerox expects GAAP earnings of 11 to 14 cents per share and adjusted EPS of 32 to 35 cents per share.

The company narrowed its full-year guidance for GAAP EPS to 45 to 48 cents per share and for full-year adjusted EPS to $1.11 to $1.14.

Xerox continues to expect full-year 2016 cash flow from operations of $950 million to $1.2 billion and free cash flow of $600 to $850 million.

About Xerox

Xerox is helping change the way the world works. By applying our expertise in imaging, business process, analytics, automation and user-centric insights, we engineer the flow of work to provide greater productivity, efficiency and personalization. Our employees create meaningful innovations and provide business process services, printing equipment, software and solutions that make a real difference for our clients and their customers in 180 countries. On January 29, 2016, Xerox announced its plans to separate into two independent, publicly traded companies – Xerox Corporation, which will be comprised of the company’s Document Technology and Document Outsourcing businesses, and Conduent Incorporated, a business process services company. Learn more at www.xerox.com.