Xerox Cuts 2026 Profit and Cash Flow Outlook as Q3 Revenue Falls

Xerox Holdings Corp. (NASDAQ: XRX) lowered its 2026 adjusted operating income and free cash flow forecasts after third-quarter revenue declined 4.7%, as weaker IT Solutions performance, pressure in mid-range printing and higher input costs outweighed stronger profitability in its core Print and Other segment. The company maintained its full-year revenue outlook at approximately $7.6 billion.

For the quarter ended in 2026, Xerox reported revenue of $1.87 billion, down from $1.96 billion a year earlier and 4.5% lower in constant currency. Adjusted operating income rose 91% to $124 million, while adjusted operating margin expanded to 6.6% from 3.3%. The improvement reflected higher profitability in Print and Other and a lower selling, administrative and general expense ratio.

Adjusted net income fell to $7 million from $27 million, and adjusted earnings per share declined to $0.02 from $0.20. On a GAAP basis, Xerox recorded a net loss of $1.02 billion, or $7.73 per share, including a $959 million goodwill impairment charge. The year-earlier GAAP net loss was $760 million, or $6.01 per share.

Print profitability improves as post-sale revenue declines

Print and Other revenue decreased 2.9% to $1.69 billion. Equipment revenue rose 2.6% to $393 million, supported by gains in entry-level and high-end systems, while post-sale revenue fell 4.5% to $1.30 billion.

Total equipment installations increased 9% year over year. Entry-level installations rose 16% and high-end installations increased 13%, including 13% growth in Production installs. Mid-range installations declined 20%, reflecting the weakness that management identified as a key pressure on its full-year outlook.

The segment’s adjusted gross margin increased to 30.6% from 30.0%. Segment profit more than doubled to $136 million from $64 million, lifting the segment margin to 8.1% from 3.7%.

Xerox said Production demand remained healthy, with Production equipment revenue up 14% in the quarter. Three recently announced platforms are scheduled to begin shipping in 2027, while the company’s Xeikon partnership is intended to expand its presence in packaging and labels.

IT Solutions weighs on revenue and profit

IT Solutions revenue fell 17.3% to $187 million, including a 23% decline in product revenue and a 7% decrease in services revenue. Segment profit dropped 55.6% to $8 million, and its margin narrowed to 4.4% from 8.1%.

Management attributed the decline to a sales-force rebuild that took longer than expected, slower pipeline conversion and tighter terms from suppliers and distributors. Xerox expects a better year-over-year comparison in the fourth quarter, citing a 24% increase in backlog and a larger pipeline, while also aligning costs with the unit’s current revenue run rate.

On a year-to-date basis, IT Solutions gross billings increased 1% and gross bookings rose 5%. The business had sourced about $188 million of opportunities from legacy Xerox print clients. Cloud and hosting billings recorded double-digit growth, driven by Microsoft cloud services, while PC sales also increased due to a change in device mix.

Cash generation weakens and leverage remains elevated

Operating cash flow declined to $30 million from $116 million, while free cash flow fell to $7 million from $88 million. Xerox ended the quarter with $530 million of cash, cash equivalents and restricted cash, compared with $535 million a year earlier.

Total debt stood at $4.2 billion and net debt at $3.7 billion. Total debt was 5.4 times trailing-12-month adjusted EBITDA, down from 5.9 times in the second quarter, while net leverage declined to 4.7 times from 5.1 times.

The company said reducing leverage remains a priority. It retired $200 million of debt through open-market purchases during the first nine months of 2026 and eliminated another $8 million of convertible notes through its warrant program. Xerox also agreed to exchange $174 million of 2028 notes for 2030 first-lien notes and common stock, reducing total debt by $53 million.

Xerox is suspending common and preferred dividends, a step expected to save approximately $28 million annually for debt reduction. The company projects year-end gross leverage of 5.6 times and net leverage of 4.7 times. It has no major debt maturity until August 2028, with less than $160 million due in 2027.

Full-year profit and cash flow forecasts reduced

Xerox now expects 2026 adjusted operating income of $450 million to $475 million, down from its previous forecast of $555 million to $605 million. Free cash flow is projected at $50 million to $100 million, compared with the prior expectation of approximately $250 million.

Management identified four principal reasons for the revisions: an incremental $60 million headwind from memory and oil costs versus its initial guidance, a faster-than-expected decline in mid-range print demand, weaker market conditions with less seasonal improvement anticipated in the second half, and lower expectations for IT Solutions. Lower proceeds from tariff receivables and the timing of finance-receivable transactions also contributed to the reduced cash flow outlook.

The company is responding with pricing actions, additional cost reductions and longer-term structural initiatives. Xerox expects $175 million to $225 million of 2026 benefits from Lexmark integration synergies and about $100 million from its Transformation initiatives. Cumulative annualized Lexmark cost synergies are expected to reach at least $350 million in 2027, although realizing those benefits remains subject to integration and execution risks.

Other uncertainties identified by Xerox include macroeconomic weakness, inflation, higher interest rates, tariffs and supply-chain disruptions; competitive and technological change; cybersecurity threats; indebtedness and access to capital; foreign-exchange movements; and the company’s ability to integrate Lexmark and achieve the anticipated synergies.