Xerox Holdings Q2 Preview: I'm Rooting For You, Xerox!

Xerox (XRX) is set to report Q2 '25 earnings with expected non-GAAP EPS of $0.07 on $1.55 billion in sales, indicating sequential growth but an annual decline. The company's strategic reinvention, targeting $500 million in savings by 2026, is significantly advanced by the recent acquisition of Lexmark, which adds approximately $3.7 billion in growing revenue and modernizes XRX's offerings with IoT and AI-enhanced print solutions. While management projects improved operating margins and free cash flow for 2025, the substantial integration of Lexmark and ongoing transformation are anticipated to present near-term challenges, potentially affecting cash flow and share performance.

Analysis

Xerox Holdings Corporation (XRX) is approaching its Q2 2025 earnings report amidst a critical strategic reinvention. While consensus estimates project a non-GAAP EPS of $0.07 on $1.55 billion in sales—implying 6% sequential growth but a 1% annual decline—the company’s history of missing analyst expectations in 7 of the last 10 quarters on sales and 6 of 10 on EPS injects considerable uncertainty. The core of the investment thesis now revolves around the company's transformation, underpinned by a cost-saving program targeting $500 million by 2026 and, more significantly, the recent acquisition of Lexmark. The Lexmark deal is set to fundamentally alter Xerox's financial profile by adding approximately $3.7 billion in annual revenue, representing a roughly 50% top-line increase. Crucially, Lexmark brings a growing revenue stream and a more modern product portfolio, including IoT-enabled devices and AI-enhanced workflows, which directly supports Xerox’s pivot away from its declining legacy print business. However, existing 2025 guidance for a 5% adjusted operating margin and $350-$400 million in free cash flow is now outdated as it excludes the Lexmark integration. Consequently, the market is focused on management's ability to successfully integrate this large acquisition, a process expected to create near-term cash flow pressures and operational challenges despite its long-term strategic promise.

Key Decisions for Investors

• Investors should scrutinize the upcoming Q2 '25 earnings call for updated, consolidated guidance that fully incorporates the Lexmark acquisition, as this will provide the first clear view of the new entity's projected revenue, margins, and free cash flow.
• The primary risk factor is execution; therefore, pay close attention to management's commentary on the progress and challenges of the Lexmark integration, as this will be the key determinant of the turnaround's success.
• Given the substantial integration risks, historical earnings volatility, and expected near-term pressure on cash flow, a cautious stance may be prudent until there are several quarters of evidence that the strategic pivot is delivering sustained margin improvements.