Xerox NASDAQ: XRX executives used the company’s first-quarter 2026 earnings call to emphasize a tighter operational focus under newly appointed CEO Louie Pastor, while pointing to early signs of improving trends following the integration of Lexmark.
Pastor, who said he was appointed CEO after serving as president and COO since September, told investors the company’s strategy “is not changing,” but that execution would be framed around three priorities: stabilizing revenue, increasing profitability, and reducing leverage. “The plan is in place. We run it,” Pastor said.
First-quarter results reflect Lexmark addition and improved profit trends
Xerox reported first-quarter revenue of $1.85 billion, up nearly 27% year-over-year in actual currency and 24% in constant currency, which management attributed to the contribution from the Lexmark acquisition. On a pro forma basis, revenue declined 4% year-over-year, which Pastor described as a “material improvement” from the 9% organic revenue decline seen in the fourth quarter of 2025.
Adjusted operating margin was 3.9%, up 240 basis points year-over-year, marking what Pastor called a turning point after five quarters without year-over-year margin improvement. CFO Chuck Butler said adjusted operating income “more than tripled year-over-year,” driven by higher gross margin, integration synergies, and lower marketing spend.
Adjusted gross margin was 30.3%, up 60 basis points year-over-year, but Butler noted it was partially offset by increased product cost and declines in “high-margin finance-related fees,” which he linked largely to forward flow arrangements that shift certain finance income off the balance sheet.
Xerox reported a GAAP loss per share of $0.84, down $0.09 year-over-year, and an adjusted loss per share of $0.43, which Butler said was $0.37 lower than a year ago. Butler also addressed what he called an “unusual” non-GAAP adjusted tax rate of negative 219%, attributing it to valuation allowances against certain deferred tax assets. “It is a GAAP consequence of where we sit today, not a reflection of operating performance or cash,” he said.
Revenue benefited from supply-related pull-forward; outlook reaffirmed
Butler said first-quarter revenue included an approximate 1% benefit from pull-forward of post-sale revenue, “primarily in supplies,” partly driven by customer and channel concerns about potential supply disruptions tied to the conflict in the Middle East. Even excluding that benefit, Butler said the quarter would have exceeded consensus expectations by about $80 million.
Management reaffirmed full-year 2026 guidance. Butler said Xerox still expects:
- Revenue greater than $7.5 billion
- Adjusted operating income of $450 million to $500 million
- Free cash flow of approximately $250 million
Butler said the operating income outlook implies more than $200 million of improvement versus 2025, driven by $150 million to $200 million of in-year integration synergies and $100 million of in-year transformation savings. Pastor separately said Xerox expects $250 million to $300 million of incremental savings in 2026, including $150 million to $200 million tied to Lexmark integration, emphasizing the actions are part of a multi-year effort.
On tariffs, Butler said the company’s first-quarter results and guidance do not include potential refund benefits associated with the Supreme Court ruling on IEEPA tariffs. He said Xerox expects additional clarity during the second quarter and will update investors on the next earnings call.
Print: “Barbell” focus on entry and production; mid-range remains challenged
Pastor said print demand is showing steadier trends in entry devices, continued softness in mid-range, and strong demand in production. He highlighted “Proficio,” a recently launched device developed in partnership with Fujifilm, saying it is tracking “well ahead of plan.” Pastor also pointed to a new distribution relationship, saying Toshiba Americas added Xerox PrimeLink color and monochrome light production printers to its portfolio, calling it validation of the company’s production offering.
During the Q&A, Pastor said Xerox’s commercial strategy includes a mix shift within print toward “entry and production” — a “barbell strategy” — while describing mid-range as “the most challenged part of the market.” He said the company will continue to participate in mid-range, noting it remains profitable and part of enterprise managed print services offerings, but reiterated that strategic focus will be on the two areas of growth.
In the Print and Other segment, Butler reported equipment revenue of $378 million, up 33% as reported (31% in constant currency). On a pro forma basis, equipment revenue declined 2%, improving from a 10% decline in the prior quarter. Print post-sale revenue was $1.31 billion, up 30% as reported (27% constant currency), but down 4% pro forma, mainly due to lower financing income and declines in service rental and other areas within legacy Xerox, according to Butler.
Print and Other adjusted gross margin was 31.3%, down 10 basis points year-over-year, with Butler citing higher product cost and lower high-margin finance-related fees, offset by transformation savings and Lexmark’s contribution. The print segment margin was 5.1%, up 190 basis points year-over-year, driven by Lexmark, transformation benefits, and integration savings.
IT Solutions: bookings and billings rise; GAAP revenue impacted by accounting
Xerox’s IT Solutions business posted “another solid quarter,” Pastor said, with bookings up 32% and billings up 21%. Butler said GAAP revenue in the segment declined 5%, but argued that figure “understates underlying activity” because a growing share of sales—such as third-party service contracts, SaaS, and certain fulfillment contracts—are reported on a net basis. “The widening difference between GAAP and gross billings reflects accounting treatment, not changes in demand,” Butler said, adding that gross billings and segment profit are the most useful measures for tracking the segment’s health.
Butler reported IT Solutions gross profit of $30 million and gross margin of 19.5%, up 230 basis points year-over-year, driven by changes in revenue mix and synergies, partially offset by higher memory costs. Segment profit was $6 million, representing a 3.9% profit margin, up 80 basis points year-over-year, as higher gross profit was partially offset by investments in sales and delivery and strategic hires.
Pastor said memory lead times have extended and, in certain cases, higher memory prices have compressed margins as the company prioritizes establishing relationships and expanding wallet share. Butler added that memory affects both segments. In IT Solutions, he said Xerox largely passes higher memory costs through to end customers, while on the print side memory can represent “a significant cost increase” on certain products, particularly higher-end devices. Butler said Xerox’s current forecast includes the effects of memory cost increases, fuel prices, and tariff changes in reaffirming 2026 guidance.
Cash flow seasonality and balance sheet actions remain in focus
Operating cash flow was a use of $144 million in the quarter, compared with a use of $89 million last year, which Butler attributed to the inclusion of Lexmark, lower proceeds from finance receivable sales, and working capital timing. Free cash flow was a use of $165 million, and Butler described the first quarter as the company’s “seasonal trough,” with most free cash flow expected in the back half of the year.
Xerox ended the quarter with $637 million of cash and cash equivalents, including $52 million of restricted cash, and total debt of $4.4 billion. Butler said approximately $1.4 billion of the debt supports finance assets, with the remaining $3 billion considered core debt tied to the non-financing business. On a pro forma basis, Xerox’s gross leverage was 7x trailing twelve-month EBITDA.
Butler highlighted an intellectual property joint venture with TPG Angelo Gordon, which he said raised more than $400 million of liquidity net of fees. Following the agreement, Xerox repurchased $101 million face value of its 2028 senior unsecured notes for $45 million, capturing a $56 million discount, which Butler said reduced future cash interest and “captur[ed] real value” for shareholders.
Looking ahead, Butler said Xerox expects by year-end 2026 gross and net leverage to drop by about 1.5x to 5.6x and 4.5x trailing twelve-month EBITDA, respectively, based on its implied guidance.
In closing remarks, Pastor said the first quarter offered “early proof points” that initiatives are taking hold, citing an improving revenue trajectory, expanding margins, and pipeline growth across print and IT Solutions. He said management plans to engage actively with employees, clients, partners, and investors while keeping focus on the company’s three stated priorities.
About Xerox NASDAQ: XRX
Xerox Holdings Corporation NYSE: XRX is a global provider of document management technology and services. The company designs and manufactures a broad range of multifunction printers, production printers, digital presses and related consumables. In addition to its hardware offerings, Xerox delivers software and workflow automation solutions, managed print services and cloud-based document platforms that help organizations optimize their information-intensive processes.
Founded in 1906 as The Haloid Photographic Company, Xerox pioneered xerographic imaging in the late 1940s, launching the first plain-paper copier in 1959.
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