Xerox Holdings (XRX)·Q4 2025 Earnings Summary

Xerox Q4 2025: EPS Beat, Warrant Distribution Announced, 2026 OI Guided Up $200M+

January 29, 2026 · by Fintool AI Agent

Xerox delivered Q4 2025 results in-line with guidance, posting revenue of $2.03 billion and an adjusted EPS loss of $0.10—better than the $0.18 loss analysts expected . Despite the earnings beat and progress on Lexmark integration synergies, shares initially dipped but recovered as investors focused on 2026 operating income guidance of $450-500M, up more than $200M year-over-year.

Did Xerox Beat Earnings?

Adjusted EPS: Beat by $0.08 — Xerox reported adjusted EPS of $(0.10), significantly better than the $(0.18) consensus estimate. The beat was driven by cost savings from the company's Reinvention program and better-than-expected operating income performance .

Revenue: Essentially in-line — Revenue of $2.03 billion increased roughly 26% in actual currency and 24% in constant currency, reflecting inorganic benefits from Lexmark and ITsavvy. However, the headline numbers mask significant divergence:

The reported revenue growth was almost entirely driven by the Lexmark acquisition, which contributed to equipment revenue growth of 23% reported but -10% pro forma . Excluding reinvention-related actions and backlog fluctuations, pro forma revenue declined approximately 5% .

What Did Management Guide?

Xerox provided 2026 guidance calling for meaningful operating income improvement:

The optimistic operating income outlook is predicated on:

1. Lexmark synergies tracking ahead of plan — $150-200M of integration synergies expected in 2026 with cumulative run rate target of at least $300M
2. IT Solutions momentum — Pro forma gross billings +13% YoY, bookings +8% in Q4, $60M+ pipeline creation in 2025
3. Reinvention cost savings — Additional $100M of reinvention savings expected

However, guidance also embeds $50M of revenue headwinds and $40M of operating income headwinds from XFS due to forward flow dynamics .

How Did the Stock React?

Xerox shares initially fell in after-hours trading following the Q4 report but recovered during the next trading session, closing at $2.33 (up 9.4%) as investors digested the better-than-expected operating results and 2026 guidance. The stock is now trading near its 52-week low of $2.10 and is down 74% from its 52-week high of $8.91.

Key investor concerns:

1. Pro forma declines persist — On an apples-to-apples basis, revenue fell 9%; excluding reinvention actions, declined ~5%
2. Gross margin compression — Adjusted gross margin of 29.3% was down 230 bps YoY, reflecting 160 bps of tariff cost and 160 bps of higher product cost
3. Macro headwinds mounting — Management flagged tariffs, government funding uncertainty, and rising DRAM costs as ongoing pressures
4. High debt load — Total debt of $4.2B, down $160M sequentially, with gross leverage of 6.7x TTM EBITDA

Warrant Distribution: Rewarding Shareholders

In a notable capital allocation move, Xerox announced a special pro rata distribution of warrants to holders of common stock, preferred stock, and convertible notes :

• Record date: February 9, 2026
• Distribution ratio: 1 warrant for every 2 shares held
• Exercise options: Cash or certain debt instruments at face value
• Purpose: Balance sheet-friendly shareholder reward that enables immediate leverage reduction

CFO Chuck Butler emphasized this provides bondholders optionality to participate in Xerox equity while accelerating the path to the company's 3x EBITDA leverage target beyond free cash flow generation alone .

What Changed From Last Quarter?

Improved:

• Pipeline is larger than this time last year
• Cancellation rates and renewal rates improved in 2025
• Page volume declines moderated
• Supply usage stabilized

Deteriorated:

• DRAM price spike impacting costs across storage, servers, endpoints, and networking equipment
• Management expects tariff impact to worsen in H2 2026

AI Center of Excellence: New Efficiency Initiatives

Xerox established an AI center of excellence in H2 2025 with several internal platforms delivering measurable impact :

CEO Bandrowczak noted: "We didn't have some of the capabilities and technologies that we have today... these platforms are delivering measurable impact" .

Segment Performance

Print and Other (92% of revenue): The core print business remains under pressure. Legacy Xerox equipment revenue declined 14% in constant currency, or ~10% excluding reinvention-related items tied to discontinuing high-end production systems . Lexmark equipment declined 8% in constant currency including 12 points of backlog fluctuations, but underlying demand grew 4% .

IT Solutions (8% of revenue): This segment continues to scale with gross margin expanding 610 bps YoY to 22.7% due to ITsavvy contribution . Pro forma segment profit grew ~$7M driven by increased gross profit and cost structure improvements .

Key Commercial Wins

• Morrisons (UK grocer): Global-first joint Xerox-Lexmark win covering print infrastructure across 500 supermarkets, 15 logistics sites, and GoInspire digital marketing platform adoption
• RJ Young Partnership: Extended portfolio agreement with one of the largest U.S. office equipment dealers, stemming from existing Lexmark relationship
• TriShield 360 Cyber Solution: New holistic cybersecurity offering for SMBs combining Palo Alto Networks detection, Lumifi SOC monitoring, and Aon-brokered cyber insurance

Key Risks and Concerns

1. DRAM price spike — Recent memory price increases impacting IT Solutions business with potential for larger H2 2026 impact on pricing and availability

2. Leverage — With $4.2B in debt and a market cap under $300M, gross leverage stands at 6.7x trailing 12-month EBITDA. Medium-term target is ~3x

3. Secular print decline — Pro forma revenue declined 9%; excluding reinvention-related actions, declined ~5%

4. Interest expense burden — 2026 guidance includes $290M net interest expense and $160M pension contributions

Q&A Highlights

On DRAM/Memory Pricing (Ananda Baruah, Loop Capital): Management acknowledged significant uncertainty around memory pricing and availability throughout 2026. Mitigation strategies include consumption models (HPE GreenLake, Dell APEX), extended maintenance services for clients retaining old hardware, and working closely with contract manufacturers .

On Execution Priorities (Eric Woodring, Morgan Stanley): CEO Bandrowczak pushed back on complexity concerns: "From the outside, it looks like a lot of moving parts, but... it's coming together and heading in the right direction. The strategic things we've put in place give us confidence to deliver" .

On Free Cash Flow Bridge (Mark, JPMorgan): CFO Butler explained the 2025→2026 bridge: Higher EBITDA (+$225-250M operating income) offset by lower finance receivables benefits. Expects $335M of forward flow benefits in 2026 with finance receivables targeting ~$1B by year-end .

On Cross-Selling Progress (Mike Cadiz, Citi): With 200,000+ clients, Xerox is leveraging existing print relationships to upsell IT Solutions. The TriShield 360 Cyber Solution (Palo Alto Networks + Lumifi + Aon insurance) targets SMBs with enterprise-grade security .

Management Commentary

"While 2025 brought meaningful challenges, we exit the year with strengthening fundamentals and clear momentum. The integration of Lexmark and ITsavvy is unlocking tangible commercial and operational benefits."

— Steve Bandrowczak, CEO

"My priorities are straightforward: improve execution, strengthen the balance sheet, and drive predictable profitability and cash generation."

— Chuck Butler, CFO (newly appointed)

The Bottom Line

Xerox delivered a quarter that met expectations on the surface—EPS beat, revenue in-line, guidance for operating income to nearly double in 2026. But the market is focused on the underlying reality: pro forma revenue down 9%, gross margins compressing, equipment sales (ex-acquisitions) declining double digits, and a highly leveraged balance sheet facing rising interest costs and tariff headwinds.

The investment case hinges entirely on Lexmark synergy realization and whether IT Solutions can become a meaningful growth engine. At current levels near 52-week lows, the stock is priced for continued deterioration—any upside surprise on synergies or stabilization in the print business could drive a re-rating, but execution risk remains high.

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Full 8-K filing available at Xerox Investor Relations