Xerox (NASDAQ:XRX) executives said the company is entering 2026 with improving underlying business trends despite continued macroeconomic pressure and new cost uncertainty tied to rising memory prices.
On the company’s fourth-quarter 2025 earnings call, CEO Steve Bandrowczak and newly appointed CFO Chuck Butler highlighted the impact of the Lexmark and ITsavvy acquisitions, discussed stabilization signs in the core print business, and laid out 2026 targets for revenue growth, margin expansion, and debt reduction.
Fourth-quarter results: acquisition-driven growth, weaker underlying demand
Adjusted operating margin was 5%, down 140 basis points from the prior year. Free cash flow was $184 million, down $150 million year-over-year. Xerox posted an adjusted loss per share of $0.10, which the company said was $0.46 lower than the prior-year period.
Butler said fourth-quarter revenue came in slightly below guidance, while adjusted operating income and free cash flow were ahead of internal expectations due to integration activities, early synergy capture, and cost discipline.
Key profitability drivers: tariffs, product costs, and higher interest expense
Butler said adjusted gross margin was 29.3%, down 230 basis points year-over-year, driven by tariff and product cost inflation. He quantified the impacts as 160 basis points of higher tariff cost and 160 basis points of higher product cost, partially offset by Lexmark’s contribution and reinvention benefits.
Adjusted operating margin declined 140 basis points to 5%, primarily due to lower gross margin, partially offset by integration savings. Butler also pointed to higher adjusted other expenses, which rose to $85 million, up $54 million year-over-year, “due mainly to higher net interest expense associated with the Lexmark acquisition financing.”
The adjusted tax rate rose to 147.1% from 32.9% a year earlier, which management attributed to geographic mix and limitations on benefiting from losses in certain jurisdictions.
Segment performance: print stabilizes while IT solutions grows and improves profitability
Within “print and other,” Xerox reported fourth-quarter equipment revenue of $485 million, up 23% as reported (21% in constant currency). On a pro forma basis, equipment revenue declined about 10%, which Butler said improved to around a 5% decline after normalizing for reinvention-related actions and one-time items.
Butler said legacy Xerox equipment revenue declined 14% in constant currency (or roughly 10% excluding reinvention-related items tied to discontinuing manufacturing of high-end production systems). He cited budget-related delays affecting Federal and SLED orders, along with softer commercial and channel demand. Lexmark equipment revenue declined 8% in constant currency, though Butler said underlying demand grew 4% versus a comparable 12% decline in the third quarter, pointing to “a firming of demand over the quarter.” He added that elevated backlog weighed on fourth-quarter revenue but represents future opportunity as it converts.
Print post-sale revenue was $1.39 billion, up 25% as reported (23% in constant currency). On a pro forma basis, post-sale revenue declined 9%, or about 5% excluding reinvention effects. Butler said that represented a “modest improvement” as supplies, services, and outsourcing declines moderated at legacy Xerox.
In IT solutions, revenue increased 39% year-over-year, reflecting ITsavvy’s inclusion for the full quarter. Butler said pro forma gross billings rose 13% and total bookings increased 8% in the fourth quarter. Xerox also cited more than $60 million of pipeline creation in 2025 from selling IT products and services into existing Xerox print clients.
IT Solutions gross margin was 22.7%, up 610 basis points year-over-year, which Butler attributed primarily to ITsavvy. Segment profit grew $9 million year-over-year, with segment margin reaching 5.8%.
Strategic updates: AI initiatives, integration wins, and new offerings
Bandrowczak emphasized progress on the company’s strategic priorities—reinvention, acquisition benefits, and balance sheet strength—while describing internal AI deployment and commercial expansion efforts.
- AI and operational efficiency: Xerox established an AI center of excellence and deployed AI-powered service agents across Xerox Business Services in the U.S. and Latin America. Management said these tools are handling thousands of customer interactions and have improved success rates and reduced wait times at lower cost per interaction. Xerox also described using Microsoft Copilot Studio and data science to reduce outstanding accounts receivable, automate more than $10 million in credit hold actions, and analyze 1.4 million collected comments. The company said it is also using machine learning to identify potential counterfeit and third-party cartridge activity.
- ITsavvy integration: The company said it is going to market under a unified brand, Xerox IT Solutions, and introduced “Xerox TriShield 360 Cyber Solution” for SMB customers. Management described the offering as built on Palo Alto Networks detection technology and continuous monitoring, with response services from Lumifi’s security operations center and cyber insurance coverage brokered by Aon.
- Lexmark go-to-market and product rollout: Xerox said partner concerns following the Lexmark transaction have eased. The company rolled out Lexmark-produced A3 devices in Eastern Europe, citing positive channel feedback and expectations for lower service costs and improved partner uptake, with a broader global rollout planned in 2026 as in-house capacity ramps.
- Customer and partner wins: Xerox and Lexmark secured what management described as a “global-first joint win” with U.K. grocery retailer Morrisons, expanding the relationship across operational print infrastructure and marketing communications, including a refreshed central print room, cloud-based print management, web-to-print automation, Lexmark MPS across 500 supermarkets and other sites, and adoption of Xerox’s Go Inspire platform. Xerox also announced a partnership agreement with RJ Young that extends Xerox’s portfolio through RJ Young’s service capabilities.
2026 outlook: revenue growth, $200M+ operating income improvement, and deleveraging focus
For full-year 2025, Xerox reported revenue of $7.02 billion, up 13% in actual currency (12% in constant currency). Excluding acquisitions, revenue declined about 8%. The company generated $133 million of free cash flow for the year and reported an adjusted operating margin of 3.5%, down 140 basis points year-over-year.
Looking ahead, Butler guided to more than $7.5 billion in 2026 revenue, representing about 7% growth versus 2025 and including a full year of Lexmark. He said the outlook includes headwinds from reinvention actions, including lower revenue from exiting high-end production print manufacturing and continued declines in finance receivables tied to forward flow execution, partially offset by expected growth in IT solutions.
Xerox expects adjusted operating income of $450 million to $500 million in 2026, which management said would be an increase of more than $200 million versus 2025. Butler attributed the improvement to $150 million to $200 million of integration synergies and $100 million of reinvention savings. The company also expects approximately $250 million of free cash flow in 2026, driven by higher operating income but partially offset by higher interest expense and reduced forward flow benefits.
Butler said tariffs are expected to be a profit headwind in the first half of 2026 and a tailwind in the second half as Xerox shifts more A3 production in-house, while recent memory price increases are expected to offset some of that benefit. Bandrowczak separately said a recent spike in DRAM prices is impacting costs across IT hardware categories, with the greatest effect on the IT solutions business; Xerox said it is working to mitigate the impact by shifting toward consumption models and providing extended maintenance services for customers retaining older hardware.
On the balance sheet, Xerox ended the quarter with $565 million of cash, cash equivalents, and restricted cash, and total debt of $4.2 billion, down $160 million sequentially. Butler said Xerox repaid $100 million of ABL borrowing during the quarter and had no ABL borrowings at year-end. He added the company plans to repay the remaining $110 million of ITsavvy notes the following day. Xerox’s “top capital priority” is debt reduction, with a medium-term gross leverage target of approximately 3x trailing 12 months EBITDA.
Xerox also announced a special pro rata distribution of warrants to holders of common stock, preferred stock, and convertible notes. Butler said the company will issue one warrant for every two shares held for holders as of the record date of Feb. 9, and the warrants will be tradable and exercisable with cash or certain debt instruments at face value. Management framed the move as a “balance sheet-friendly way to reward shareholders” while giving bondholders optionality to participate in equity and potentially accelerate deleveraging if exchanged for debt.
About Xerox (NASDAQ:XRX)
Xerox Holdings Corporation (NYSE: XRX) is a global provider of document management technology and services. The company designs and manufactures a broad range of multifunction printers, production printers, digital presses and related consumables. In addition to its hardware offerings, Xerox delivers software and workflow automation solutions, managed print services and cloud-based document platforms that help organizations optimize their information-intensive processes.
Founded in 1906 as The Haloid Photographic Company, Xerox pioneered xerographic imaging in the late 1940s, launching the first plain-paper copier in 1959.
