Xerox Q3 2026 Earnings: Adjusted Margin Expands as Revenue Declines

Xerox Holdings (NASDAQ: XRX) reported Q3 2026 revenue of $1.868 billion, down 4.7% from $1.961 billion a year earlier, while its GAAP diluted loss per share widened to $7.73 from $6.01. Adjusted EPS fell to $0.02 from $0.20, although adjusted operating margin doubled to 6.6% as integration synergies and cost reductions supported operating profit. Operating cash flow declined to $30 million, and Xerox lowered its full-year adjusted operating income and free cash flow guidance.

Core Earnings Data

Equipment sales increased, but the improvement was outweighed by declines in post-sale revenue and IT Solutions. On a constant-currency basis, total revenue fell 4.5%, close to the reported decline of 4.7%.

The GAAP loss was dominated by a $959 million pre-tax goodwill impairment. On an adjusted basis, operating income increased as cost discipline and Lexmark integration benefits more than offset some of the pressure from lower revenue and higher product costs.

Adjusted results and free cash flow are non-GAAP measures. The prior-year GAAP results also included acquisition accounting and tax charges, making the headline GAAP comparisons sensitive to large discrete items in both periods.

Business and Segment Performance

Print and Other remained the main earnings contributor. Its revenue declined modestly, but segment profit more than doubled, while IT Solutions recorded sharper declines in both revenue and profit.

Within the print business, equipment sales rose 2.6% to $393 million, or 2.9% in constant currency. Equipment installations increased 9%, driven by the Entry and High-end categories, while equipment revenue grew at double-digit rates in Entry and Production.

Post-sale revenue fell 4.5% to $1.295 billion. Xerox attributed the decline to lower equipment service and managed print services revenue, as well as weaker supplies, rentals, and financing revenue. The IT Solutions decline primarily reflected the timing of large public-sector product placements in the prior-year period.

The GAAP Loss and Adjusted Margin Reflect Different Drivers

The $1.015 billion GAAP net loss largely resulted from a $959 million pre-tax, or $955 million after-tax, non-cash goodwill impairment. Xerox reduced its projections for the Print and Other reporting unit because of continued macroeconomic uncertainty and sustained memory price increases, lowering the estimated value of its future cash flows. The charge reduced diluted EPS by $6.87.

Underlying operating measures moved in the opposite direction. Adjusted operating margin increased from 3.3% to 6.6%, supported by integration synergies, transformation-related productivity actions, lower incentive compensation, and lower bad-debt expense. Selling, administrative, and general expenses declined to 20.0% of revenue from 24.3%, while research and development expense declined to 3.0% from 3.8%.

The 650-basis-point increase in GAAP gross margin was amplified by the absence of a prior-year Lexmark inventory-related purchase accounting adjustment. Adjusted gross margin increased by a more moderate 60 basis points, and adjusted gross profit still declined by $15 million because of lower revenue. Adjusted EPS also fell despite the higher operating income, showing that the operating-margin improvement did not fully carry through to bottom-line earnings.

Profitability, Cash Flow, and the Balance Sheet

Cash generation weakened even as adjusted operating profit improved. Operating cash flow fell to $30 million, and $23 million of capital spending left free cash flow of $7 million. Cash uses during the quarter included a $37 million increase in inventory and $46 million of retirement-plan contributions, partly offset by a $34 million reduction in receivables and a $30 million increase in accounts payable.

Cash and cash equivalents stood at $412 million on September 30, 2026, down from $512 million at the end of 2025. Inventory increased to $1.063 billion from $1.016 billion. Long-term debt rose to $4.063 billion from $4.016 billion, while short-term debt declined to $157 million from $231 million. The impairment contributed to total equity moving to a $677 million deficit from positive equity of $449 million at year-end.

To preserve cash and continue reducing leverage, Xerox said it would suspend common and preferred dividends. The company also announced an exchange of $174 million of 5.50% senior notes due in 2028 for $121 million of 10.25% senior secured notes due in 2030 and $9 million of equity.

2026 Guidance

Xerox lowered its full-year adjusted operating income and free cash flow outlook. The revision indicates that higher input costs and weaker business conditions are expected to outweigh some of the cost and integration progress visible in the third quarter.

The operating income reduction reflects higher-than-expected input costs, a product mix shift from Mid-range to Entry devices, a weaker market outlook, and lower-than-expected IT Solutions profit. The free cash flow cut also reflects lower finance-receivable and tariff-receivable proceeds, with some benefits moving into 2027.

The latest adjusted operating income guidance includes a $105 million pre-tax benefit from recognition of an IEEPA tariff receivable. Free cash flow guidance includes an $80 million benefit from selling that receivable to a third party.

Risks Investors Need to Watch

• Input-cost pressure: Sustained memory price increases contributed to the goodwill impairment and the lower operating income outlook. Further increases could offset productivity savings and pressure adjusted margins.
• Recurring revenue declines: Post-sale revenue fell 4.5% as service, managed print, supplies, rental, and financing revenue weakened. Continued declines would make overall revenue stabilization more difficult.
• IT Solutions weakness: Segment revenue declined 17.3% and profit fell 55.6%. Management also cited lower-than-expected IT Solutions profit as a reason for reducing guidance.
• Cash flow and leverage: Quarterly free cash flow was only $7 million, cash declined from year-end, and long-term debt exceeded $4 billion. The dividend suspension underscores management’s focus on preserving cash and reducing debt.
• Guidance dependence on receivable benefits: The revised outlook includes material benefits from the tariff receivable, while some other expected proceeds have shifted into 2027.

Summary

Xerox’s Q3 2026 results showed a clear split between improving adjusted operations and continued financial pressure elsewhere. Integration synergies and cost reductions doubled the adjusted operating margin despite lower revenue, but a large goodwill impairment drove the GAAP loss, while adjusted EPS and cash flow declined. Investors will need to monitor whether equipment growth and cost savings can offset weaker post-sale and IT Solutions revenue, higher input costs, and the company’s elevated cash and leverage constraints.