Document technology company Xerox (NASDAQ: XRX) met Wall Street’s revenue expectations in Q3 2026, but sales fell by 4.7% year on year to $1.87 billion. The company’s outlook for the full year was close to analysts’ estimates with revenue guided to $7.6 billion at the midpoint. Its non-GAAP profit of $0.02 per share was significantly above analysts’ consensus estimates.

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StockStory’s take

Xerox’s third quarter was marked by both operational progress and acute challenges, with the market responding negatively to the results. Management highlighted improvements in print revenue trends, organic equipment sales growth, and advancements in production printing, citing the integration of Lexmark’s portfolio as a key contributor. However, CEO Louie Pastor acknowledged that rising input costs, unfavorable product mix shifts, a weaker print market, and underperformance in IT Solutions combined to outweigh these gains. Pastor was candid, stating, “Some of what we’re facing originates outside of our control…some of it is ours to fix.”

Looking ahead, Xerox’s management is focused on stabilizing revenue and increasing profitability amid persistent external headwinds. The company’s priorities include implementing pricing actions, accelerating cost-saving measures, and leveraging its full technology stack to drive down service costs. Pastor emphasized, “We are resolute in our priorities: stabilize revenue, increase profitability, and reduce leverage.” The company also plans to refine its IT Solutions platform and further integrate its global capability centers, while acknowledging that input costs and a shifting market landscape will continue to challenge near-term performance. CFO Chuck Butler noted that the timeline to achieve long-term leverage targets has been extended due to these persistent pressures.

Key insights from management’s remarks

Management attributed third quarter performance to improved equipment sales and production strength, but ongoing cost inflation and market softness forced a strategic reset and dividend suspension.

• Equipment sales growth: Xerox achieved its first quarter of year-over-year organic equipment revenue growth in over three years, driven by strong performance in entry-level and production printing platforms. The Lexmark acquisition contributed to the expanded portfolio, with entry equipment revenue exceeding midrange for the first time, reflecting a broader market shift.
• Production segment momentum: The production print segment remained a bright spot, with double-digit growth in both installs and equipment revenue. Management cited upcoming platform launches and the Xeikon partnership—expanding into packaging and labels—as positioning Xerox in higher-growth markets.
• Input cost escalation: Rising prices for memory, oil, and other components significantly impacted profit margins. Pastor described memory as growing from 2% to 10% of hardware costs, with expectations it could reach 15% in 2027. These cost pressures, combined with higher service-related expenses, weighed on profitability.
• Shift to entry-level mix: The ongoing shift from midrange to entry-level equipment, while positive for installed base growth, compressed near-term hardware margins due to lower initial profitability of entry devices. Management explained that entry devices become profitable over their lifecycle, but the mix shift creates a short-term profit headwind.
• IT Solutions headwinds: The IT Solutions business underperformed, affected by slower ramp-up of new sales personnel and tighter supplier terms. Despite a growing backlog and solid long-term platform fundamentals, near-term growth and conversion rates lagged expectations.

Drivers of future performance

Xerox’s outlook is shaped by persistent cost inflation, a shifting product mix, and the need for accelerated cost actions to offset market headwinds.

• Pricing actions and cost discipline: Management plans to implement targeted price increases across products and markets, while expanding cost-saving initiatives such as organizational simplification, increased use of global capability centers, and renegotiated vendor contracts. These measures are designed to partially offset rising input costs, though full impact will build gradually.
• Service model transformation: Xerox’s strategy centers on reducing service costs through greater device reliability, remote diagnostics, and AI-powered predictive maintenance. Management believes this will create a structural cost advantage, improve customer uptime, and eventually support higher margins despite ongoing mix headwinds.
• IT Solutions platform evolution: The company is aligning IT Solutions’ cost base with current demand and investing in autonomous service delivery. While management remains optimistic about long-term growth potential, near-term headwinds from slower sales ramp and tighter distributor conditions are expected to persist.

Catalysts in upcoming quarters

In the coming quarters, the StockStory team will be watching (1) the success of pricing actions and operating cost reductions in mitigating margin pressures, (2) progress in transforming the service model to enhance reliability and lower costs, and (3) the pace of IT Solutions’ sales force ramp and backlog conversion. Execution against these priorities will be critical for stabilizing performance and delivering on long-term profit improvement goals.

Xerox currently trades at $1.40, down from $2.81 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free).

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