You can’t terminate your way to corporate growth. Nor can you succeed in business by treating employees like dirt, especially client facing personnel.
Clients are saying, Cut the B S Xerox. They have voted with their wallets. Bye Xerox. Now the investment community has officially signaled your demise.
https://www.bloomberg.com/news/articles/2018-12-14/xerox-becomes-a-fallen-angel-as-moody-s-cuts-rating-to-junk
Xerox , “Thanks for the Memories.”
The key driver here is that the investment community lost all faith in Xerox performance.
There is no short term or long term strategy for Xerox performance. Regurgitated marketing slogans and treating employees like c-ap do nothing positive for the bottom line.
Here's the actual text from Moody's (major credit rating company) regarding their downgrade of Xerox unsecured debt. This means Xerox will pay higher interest rates for any money it borrows, not good news for a company that already has a decline in revenue. The stock is down over 5% today, so if Carl is still targeting $40/share my guess is he'll want pieces carved up and sold since getting the overall company back in shape may not be an option for the near term.
"New York, December 14, 2018 -- Moody's Investors Service ("Moody's") downgraded Xerox Corporation's ("Xerox") senior unsecured debt ratings to Ba1 from Baa3. The rating outlook is negative. As part of the rating actions, Moody's assigned Xerox a Ba1 Corporate Family Rating (CFR), Ba1-PD Probability of Default Rating (PDR), and an SGL-1 speculative grade liquidity rating. These rating actions conclude the review for downgrade initiated on November 1, 2018.
RATINGS RATIONALE
The downgrades reflect uncertainty about the company's ability to stabilize and grow its revenue base over the next few years given the secular decline in copier and printing demand as well as intense global competition. Xerox reported seven consecutive quarters of year over year revenue declines on a constant currency basis since the spin-off of the business process outsourcing segment despite major product launches in 2017.
Moody's has not reviewed Xerox's operating or strategic plans for 2019 which are scheduled to be presented in early February 2019 at the company's Analyst Day event. However, Moody's expects organic revenues to continue on a flat to declining trajectory over the next 12 to 18 months in the absence of an unlikely fundamental change in the company's revenue mix or market share. Xerox's top line faces continuing erosion due to a secular decline in copier and printing demand in developed countries combined with new equipment and service offerings from competing providers, a few of whom have deeper financial pockets, more stable revenues, or better penetration in higher growth Asian or emerging markets.
"Moody's believes that, given persistent secular pressures and the company's track record of declining organic revenues, potential strategies targeting improved profitability, streamlined operations, or rationalized product offerings will come with execution risks related to achieving planned results, further top line erosion, or incremental costs over the next 12 to 18 months before benefits are realized," said Carl Salas, Moody's Sr. Credit Officer.
Furthermore, Moody's believes there is uncertainty related to manufacturing arrangements and Asia-targeted marketing strategies after the current agreement with Fuji Xerox Co., Ltd. ("Fuji Xerox") expires in 2021. Moody's also believes that without the continuation of the Fuji Xerox agreements on terms that are at least similar to the current agreement, there could be additional operating and financial pressures given the need to enter into new arrangements with alternate partners or the need to fund significant investments to replace a portion or all related manufacturing and marketing functions. Xerox currently leverages third parties to do a portion of its manufacturing and disclosed during its 2Q2018 earnings call that Fuji Xerox supplies 59% of its cost production, with the remaining 41% manufactured by Xerox and other suppliers.
Xerox's Ba1 CFR is supported by the company's good market position in its core mid-range print and document outsourcing markets as well as solid leverage and free cash flow metrics. Roughly 78% of Xerox's revenue is derived from post-sale activities that include document outsourcing, managed print services, maintenance service, supplies (toner and paper), and finance income. These elements come with higher operating margins and provide some revenue predictability. Moody's recognizes the importance of providing customer financing as part of Xerox's overall selling proposition as it provides a competitive advantage and greater flexibility in structuring large technology purchases; however, financing equipment receivables weigh on the company's risk assessment due to the ongoing need to manage sizable debt maturities and cost of funding.
Ratings for the senior unsecured notes and credit facility (Ba1, LGD4) incorporate the overall probability of default of the company, as reflected in the PDR of Ba1-PD and Moody's expectation for an average family recovery in a default scenario. The assigned SGL-1 rating reflects the company's very good liquidity, supported by healthy cash and short term investment balances of over $1 billion as of September 30, 2018, free cash flow generation of more than $800 million (Moody's adjusted), and an undrawn $1.8 billion revolving credit facility.
The negative outlook reflects the persistent pressures on the company's core copier and printing business as well as execution challenges, especially if new management's operating and strategic plans include sizable restructuring charges, incremental investments, or relaxation of historical capital allocation policy. The outlook could be changed to stable if the company demonstrates progress in stabilizing revenues and if Moody's expects the company will be able to maintain operating margins and free cash flow generation while keeping leverage in line with current levels.
Xerox's ratings could be upgraded with business execution that leads to consistent revenue growth, stable to improving operating margins, and growing free cash flow. An upgrade would also require conservative financial discipline and maintaining the asset quality of its finance operations while reducing the refinancing risk associated with finance liabilities. These results would be evidenced by achieving and maintaining adjusted operating margins in the low double digit percentage range, adjusted total debt to EBITDA approaching 2.0x, and improving free cash flow generation.
Ratings could be downgraded if the company fails to show progress in stabilizing revenues, or operating margins or other credit metrics weaken. Downward rating action could also occur if Xerox incurs leverage to undertake any combination of share buybacks, dividends or acquisitions that leads to weakened credit metrics."
This just means the profitable entities within the company will be sold off to the highest bidder. The core technologies will go to FujiFilm. Although I did hear that ENBI is interested in buying our rollers manufacturing lines/business.
It was about time, guys. Not amazed it keeps getting worse by the day. They’ve been struggling with bad decisions and Management for months now, here is a reflection of the great results delivered as a team.
I'm guessing this news will make it hard for the stock price to reach 40.00 per share as Ichan and John V hope for.