Xerox beats on profit, misses on revenue under Icahn appointees

(Reuters) – Xerox Corp fell short on revenue but beat estimates for profit on the back of cost-cutting in its first full quarter under new management backed by activist investors Carl Icahn and Darwin Deason.

The U.S. photocopier, facing a long-running decline in its core business, reported net profit had roughly halved and said revenue fell 5.8 percent year-on-year to $2.35 billion in the third quarter ended Sept. 30, below an average analyst estimate of $2.42 billion.

Free cash flow for the third quarter, however, rose and the company increased its 2018 share repurchase target to $700 million from $500 million and forecast for full year free cash flow to between $900 million and $1 billion.

Xerox, faced with declining demand for office printing equipment as the popularity of smartphones reduced the need to print, agreed in January to a $6.1 billion merger with Fuji Xerox, its 56-year-old joint venture with Fujifilm.

But the complex deal ran into strong opposition from Icahn and Deason and in May the photocopier pioneer scrapped the merger and handed management control to the activist investors.

Then Chief Executive Officer Jeff Jacobson – the main architect of the deal with Fujifilm – as well as five other directors stepped down as part of a settlement with the investors.

Xerox appointed John Visentin, who worked as a consultant to Icahn in the proxy fight, as chief executive officer and vice chairman, and elected Icahn Enterprises chief Keith Cozza as chairman.

“We are progressing on our priorities, which include optimizing our operations for greater simplicity, re-energizing our innovation engine and focusing on cash flow to drive increasing shareholder returns,” Visentin said in the results.

Shares of the Norwalk, Connecticut-based company that have fallen about 9 percent this year so far, rose marginally in premarket trading on Tuesday.

Fujifilm, which was to take a majority stake in the combined company as part of the deal, has sued Xerox, winning an appeal last week that could give the Japanese company leverage to bring Xerox management back to the negotiating table.

In the wake of the aborted merger, Xerox said it would not renew its technology agreement with the pair’s joint venture Fuji Xerox, and said it would start sourcing products from new vendors to lower its dependency on Fujifilm.

In response, the Japanese firm said it was ready to compete against Xerox in Asia-Pacific and challenge it in America and Europe if it failed to renew its agreement in 2021.

Net income attributable to Xerox fell to $89 million, or 34 cents per share, in the third-quarter ended Sept. 30, from $179 million, or 68 cents per share, a year earlier, hurt by higher taxes.

Excluding items, the Norwalk, Connecticut-based company reported earnings of 85 cents per share, beating the average analyst estimate of 78 cents, according to Refinitiv data.