When Xerox Corporation (NYSE:XRX) announced its most recent earnings (30 September 2017), I did two things: looked at its past earnings track record, then look at what is happening in the industry. Understanding how Xerox performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see XRX has performed. See our latest analysis for XRX

Despite a decline, did XRX underperform the long-term trend and the industry?

I use the ‘latest twelve-month’ data, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This enables me to assess different companies on a similar basis, using new information. Xerox’s latest earnings is $550.0M, which compared to the previous year’s figure, has fallen by a non-trivial -44.67%. Since these figures may be somewhat short-term, I’ve determined an annualized five-year value for Xerox’s net income, which stands at $947.3M. This doesn’t seem to paint a better picture, as earnings seem to have steadily been falling over the longer term.

Why could this be happening? Let’s examine what’s transpiring with margins and whether the rest of the industry is experiencing the hit as well. Over the last couple of years, Xerox has, on average, delivered negative top- and bottom-line growth. As revenues fell by more, expenses have been slashed in order to sustain margins – not the most sustainable operating activity. Viewing growth from a sector-level, the US technology hardware, storage and peripherals industry has been increasing average earnings growth of 63.36% in the prior year, and a robust 11.04% over the past five. This means that any uplift the industry is enjoying, Xerox has not been able to realize the gains unlike its average peer.

What does this mean?

Xerox’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. In some cases, companies that face a prolonged period of reduction in earnings are undergoing some sort of reinvestment phase in order to keep up with the latest industry growth and disruption. I recommend you continue to research Xerox to get a more holistic view of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for XRX’s future growth? Take a look at our free research report of analyst consensus for XRX’s outlook.

2. Financial Health: Is XRX’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.

3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.