Xerox Corporation (NYSE:XRX) Q2 2019 Earnings Conference Call Transcript

Jul 30, 2019 • 08:00 am ET

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Xerox Corporation (NYSE:XRX) Q2 2019 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good morning, and welcome to the Xerox Corporation's Second Quarter 2019 Earnings Release Conference Call hosted by John Visentin, Vice Chairman and Chief Executive Officer. He is joined by Bill Osbourn, Chief Financial Officer.

During this call, Xerox executives will refer to slides that are available on the web at www.xerox.com/investor. At the request of Xerox Corporation, today's conference call is being recorded. Other recording and/or rebroadcasting of this call are prohibited without the expressed permission of Xerox. [Operator instructions]

During this conference call, Xerox executives will make comments that contain forward-looking statements, which, by their nature, address matters that are in the future and are uncertain. Actual future financial results may be materially different than those expressed herein. At this time, I would like to turn the meeting over to Mr. Visentin.

Mr. Visentin, you may begin.

Executive
John Visentin

Good morning, and thank you for joining our Q2 2019 earnings call. This quarter, we delivered improvements in earnings per share, adjusted operating margin and free cash flow, largely underpinned by our enterprisewide transformation initiative, Project Own It. These results have enabled us to increase planned investments for the second half of the year to advance our revenue road map. We expect a few returns from these investments over the near term.

But in light of the performance in the first half, we believe it is more prudent to adjust our full-year revenue guidance down to approximately 6% at constant currency, while maintaining all of our other full-year guidance measures. Adjusted operating margin for the quarter was 12.7%, up 170 basis points year-over-year. Margin expansion contributed to adjusted EPS of $0.99 in the quarter, up $0.19 or approximately 24% year-over-year.

We are pleased with our cash performance. We generated $313 million of operating cash flow in the quarter, an increase of $78 million from a year ago. Free cash flow in the quarter was $297 million, up $94 million year-over-year. While we continue to see improvements in these three key areas, revenue for the quarter was down 7.2% at constant currency year-over-year. Results were due to weaker economic conditions in Western Europe and certain developing markets and continued operational impacts in the United States we identified last quarter, albeit improving as the quarter went on.

Our strong margin expansion year-to-date has allowed us to increase the level of investments we planned for the year from approximately $0.32 of EPS to approximately $0.40 of EPS. These increased investments will primarily be in support of revenue-generating initiatives. With anticipated annual gross savings of at least $640 million, Project Own It is offsetting some of the impact of revenue declines. This initiative is helping us to simplify our business, drive a culture of continuous improvement and free up capital to reinvest in the business. Planning has begun for 2020 programs that will continue this focus.

We are on schedule with transitioning our shared services operations to a managed service provider, which will reduce cost and make it easier to do business with Xerox. With a large-scale