Information technology services provider Xerox Corporation (XRX - Analyst Report) reported net income (from continuing operations) of $191 million or 16 cents per share in first-quarter 2015 compared with $266 million or 22 cents a share in the year-ago quarter. The year-over-year decrease in GAAP earnings was primarily due to lower revenues.

Excluding the non-recurring items, adjusted earnings (from continuing operations) for the reported quarter were $239 million or 21 cents per share compared with $314 million or 26 cents per share in the year-earlier quarter. Adjusted earnings for the reported quarter were in sync with the Zacks Consensus Estimate.

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Total revenue in the reported quarter declined 6% year over year to $4,469 million and missed the Zacks Consensus Estimate of $4,511 million. The year-over-year decrease in revenues was primarily attributable to a 4% adverse currency translation effect, related to the significant weakening of major foreign currencies against the U.S. dollar. On a weighted average basis, major European currencies and the Canadian dollar were approximately 17% weaker against the U.S. dollar vis-à-vis the prior-year period. Xerox generates about a quarter of its total revenue from these major foreign currencies.

Operating margin for the reported quarter was down 1.1% year over year to 7.6%, while gross margin fell 0.3% to 31.2%. The decrease in operating margin was largely driven by a 0.9% increase in operating expenses due to higher costs associated with Government Healthcare Health Enterprise platform implementations as well as higher year-over-year pension expense.

Segment Performance

Revenues from the Services segment, which include Document Outsourcing (DO) and Business Process Outsourcing (BPO) decreased 3% year over year to $2,514 million in the reported quarter (56% of total revenue). BPO revenues fell 2% to $1,734 million due to adverse currency exchange rates and decline from the run-off of the student loan business and the Texas Medicaid contract, partially offset by organic and inorganic growth in several lines of business. Revenues from DO decreased 5% year over year to $780 million as growth in the partner print services offerings was offset by the negative currency translation effect, decline in Europe and other non-U.S. markets.

Segment margin fell 1.1% year over year to 7.5%. Total Services sales pipeline declined 7% on a sequential basis. The pipeline was adjusted in fourth-quarter 2014 to remove the ITO business and reflect the realignment of its services go-to-market resources into industry focused business groups. Total contract value of service signings aggregated $2.4 billion with BPO and DO accounting for $1.8 billion and $0.6 billion, respectively. Total contract signings decreased 13% year over year driven by a decline in new business signings and a lower level of renewal decision opportunities.

Revenues in the Document Technology segment declined 10% year over year to $1,830 million (41% of total revenue) due to the negative currency impact.

Segment margin fell 1.1% year over year to 11.1% owing to higher pension expense and price erosion. The revenue mix for the segment comprised 57% mid-range, 23% high-end and 20% for entry-level products.

Revenues in the Other segment decreased 12% to $125 million (3% of total revenue) due to lower IT and networking hardware and services sales and lesser paper and wide-format sales. Segment loss of $62 million widened $12 million from the year-ago quarter, primarily driven by lower gains on asset sale.

Financial Position

Xerox had cash and cash equivalents of $872 million by the end of the quarter, compared with $1,567 million in the year-ago period. Long-term debt at the end of the reported quarter stood at $7,598 million versus $7,741 million as of Dec 31, 2014.

Net cash provided by operating activities for the quarter stood at $113 million versus $286 million in the year-ago period. The sharp fall in operating cash flow was largely due to lower pre-tax income, lower-than-expected sales volume and lesser amount of accounts receivables. The company repurchased $216 million worth of shares during the quarter.

Other

In Dec 2014, Xerox entered into an agreement to sell its Information Technology Outsourcing (ITO) business to Atos S.E. for $1.05 billion to focus on building faster-growing units, business process outsourcing (BPO) and document outsourcing. The transaction is expected to close in the second quarter of 2015.

Outlook

Xerox has trimmed its earlier guidance for 2015 as it expects adverse currency effects, softer contract signings and integration costs related to acquisitions to pull down its earnings.

For 2015, Xerox now expects adjusted earnings to be in the range of 95 cents to $1.01, down from $1.00 to $1.06 per share. GAAP earnings from continuing operations are expected in the range of 77 cents to 83 cents per share versus 83 cents to 89 cents expected earlier. Revenues are expected to be down 4% on negative currency impact.

Xerox, however, continues to expect cash flow from operations to be in the range of $1.7 billion to $1.9 billion and free cash flow in the range of $1.3 billion to $1.5 billion. The company anticipates repurchasing up to $1 billion worth of shares in 2015, returning approximately $300 million to shareholders in dividends, and spending up to $900 million on acquisitions. For the second quarter, Xerox expects adjusted earnings of 21-23 cents per share and GAAP earnings of 17-19 cents.

Xerox currently has a Zacks Rank #4 (Sell). Stocks that look promising and are worth a look include CBIZ, Inc. (CBZ - Snapshot Report), Exponent Inc. (EXPO -Snapshot Report) and The Hackett Group, Inc. (HCKT - Snapshot Report), each carrying a Zacks Rank #2 (Buy).