Xerox NASDAQ: XRX reported second-quarter 2026 revenue growth driven by its Lexmark acquisition, raised its full-year revenue and adjusted operating-income outlooks, and continued to reduce debt as management focused on stabilizing revenue, improving profitability and lowering leverage.
Chief Executive Officer Louie Pastor said the company views its 2028, 2029 and 2030 debt maturities as “three hurdles” that shape its priorities. “If an initiative doesn't advance one of these three priorities, then we don't pursue it,” Pastor said.
Second-quarter revenue totaled $1.92 billion, up 22% year over year, or 21% in constant currency, reflecting Lexmark’s contribution. On a pro forma basis, however, revenue declined nearly 7% from the prior year. Management said the comparison reflected a currency benefit and supplies pull-forward that aided the first quarter, while the underlying year-over-year revenue trajectory modestly improved in the second quarter after accounting for those factors.
Margins Benefit From Tariff Receivables and Synergies
Adjusted operating margin rose to 10.6%, an increase of 690 basis points from a year earlier. The result included $105 million of tariff receivables recognized in gross profit following a Supreme Court ruling on IEEPA tariffs. Excluding that benefit, adjusted operating margin would have been 5.1%, still 140 basis points above the prior-year level.
Chief Financial Officer Chuck Butler said the tariff receivables represented recovery of costs Xerox had already paid and absorbed over the prior 12 months, rather than a new windfall. Xerox sold the receivable to a third party for $80 million in cash, with the $25 million difference recorded as original issue discount.
Because the claims had not been processed at quarter-end, the $80 million was classified as financing cash flow rather than operating cash flow. Butler said the classification could change after claims processing, but the economics of the cash receipt would not.
Adjusted gross margin was 36.4%, up 710 basis points year over year, while adjusted operating income benefited from Lexmark integration synergies, transformation initiatives and the tariff receivables. Higher incentive compensation, product costs, revenue mix and lower finance-related fees partly offset those gains.
GAAP earnings per share were $0.07, compared with a loss in the year-earlier period, while adjusted EPS was $0.38. Non-financing interest expense increased $45 million year over year to $100 million, primarily due to financing associated with the Lexmark acquisition and the TPG joint venture.
Equipment Weakness Offset by Entry-Level Demand
Within the Print & Other segment, equipment revenue was $387 million, up 15% as reported but down 13% on a pro forma basis. Butler attributed the pro forma decline to softer mid-range performance, lower OEM sales and a larger backlog caused by stronger-than-expected demand for entry-level products.
Pastor said entry-level demand exceeded Xerox’s ability to supply products during the quarter, pushing some installations and revenue into later periods. The company expects to work through that backlog during the second half.
In June, Xerox introduced its first hardware under a unified Xerox brand: a new entry-color printer and managed service provider lineup aimed at small workgroups. Pastor said entry-color installs increased during the quarter despite the products having been available for only several weeks.
The company is also emphasizing its internally developed 9-Series mid-range platform. Pastor said Xerox historically sourced all mid-range equipment from third parties, limiting its control over costs, working capital and product competitiveness. The new platform is intended to improve economics for Xerox and offer customers a more favorable total cost of ownership, particularly at higher print speeds.
Print & Other post-sale revenue rose 31% as reported to $1.35 billion, but declined 4% on a pro forma basis, primarily due to lower service, rental and other revenue, lower outsourcing revenue, and lower financing income. Segment margin was 12.7%; excluding tariff receivable benefits, Print segment margin increased 180 basis points year over year.
IT Solutions Billings Rise as Xerox Rebuilds Sales Force
IT Solutions gross billings increased 4% year over year in the second quarter and 11% for the first half, while GAAP revenue declined 9%. The company said a growing share of third-party services contracts, SaaS offerings and certain fulfillment contracts are reported on a net basis because Xerox acts as an agent rather than a principal.
IT Solutions gross profit margin increased 160 basis points to 18%, though segment profit margin fell 110 basis points to 3.7% as the company invested in its sales organization. Pastor said Xerox is rebuilding the segment’s sales force, adding technical sales support and strengthening cross-selling efforts, which have pressured near-term signings and profitability.
Management expects IT Solutions billings in the fourth quarter to exceed third-quarter levels on a year-over-year basis, with newer sellers becoming more productive and deal conversion improving. Revenue is expected to align more closely with billings over the next several quarters.
Pastor said customers are investing in endpoint refreshes, infrastructure modernization, data-center capacity and security related to AI workloads. He noted, however, that large data-center buildouts are not Xerox’s primary customer set and can also absorb portions of client technology budgets.
Debt Reduction and Updated Outlook
Xerox generated $37 million in operating cash flow and $11 million in free cash flow during the quarter. It ended the period with $552 million in cash equivalents and restricted cash, and total debt of $4.2 billion, down $223 million sequentially.
During the quarter, Xerox repaid $125 million of 13% senior bridge notes at maturity and repurchased $99 million of debt face value, including $93 million of 2028 senior unsecured notes. The company spent $57 million on those open-market repurchases, capturing $42 million of discount.
- Gross leverage fell to 5.9 times trailing-12-month EBITDA from 7 times at the end of the first quarter.
- Net leverage declined to 5.1 times from 6 times.
- Xerox reduced its 2028 maturity wall by nearly $200 million during the first half of 2026.
The company now expects 2026 revenue of approximately $7.6 billion, compared with prior guidance of more than $7.5 billion. It forecast adjusted operating income of $555 million to $605 million, an increase of $105 million from its prior outlook, primarily reflecting the tariff receivables recognized in the second quarter.
Xerox maintained its free-cash-flow forecast of approximately $250 million. Butler said proceeds from the tariff receivable sale were offset by higher restructuring costs, working-capital pressure and additional interest expense related to the TPG joint venture.
The company raised its Lexmark synergy target to at least $350 million from at least $300 million. About half of the anticipated savings are expected in 2026, with the remainder expected in 2027 and 2028. Management also said higher memory prices and elevated oil prices could present modest risk to its updated profit and cash outlook if those conditions persist.
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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