Technology and document services giant Xerox made a little more profit in Q3 than expected, but the numbers on contract signings and growth continue to point to tough market conditions.
Shares in the company are up 1.6% on the NYSE today (versus a 1% drop for the Dow), with adjusted EPS a shade ahead of analyst expectations at 26 cents. The results, released this morning, also show Q3 revenue up 3% to $5.6bn. But growth was just 1% if we strip out the effects of currency. Operating margin was up 0.4 points at 9.6%.
Growth such as it was came from services, where revenue was up 6% (5% constant currency). That compares to growth of 1% (or a 1% decline at constant currency) in technology (i.e. copiers, printers and the like).
Within services, Xerox’s recent numbers reflect a trend we’ve highlighted for a while, namely the squeeze on IT outsourcing business. Xerox’s ITO revenue improved compared to the 10% drop in Q2, but managed only to tread water. Happily for Xerox, however, almost 90% of its global services business comes from BPO and document outsourcing. Here revenue growth was 6% and 12% respectively, although acquisitions helped.
Two further points of caution on services, however. Signings in Q3 were up 33% yoy, but continue to lag by 9% on a trailing twelve months basis, suggesting services revenue growth will remain hard to come by for a few more quarters. Meanwhile the UK business is presented with a particular challenge. It lacks scale in BPO and is weighted towards ITO. So we suspect market trends are putting pressure on Xerox’s ability to grow in the UK and will continue to do so.
For Xerox in the UK, as indeed globally, the key opportunity is to get its ACS acquisition-derived BPO and ITO interests better integrated with its own capabilities in document management and other process-oriented services like communications and marketing. This would surely enable more cross-selling, up-selling and just plain selling (see Xerox: challenges and opportunities post ACS). Getting ACS and Xerox under the same brand might be a good place to start.