5 Stocks With Solid EPS Growth Poised To Move Higher [View article]
Re. XRX, many people believe that services companies yield better margins than products-based ones. That is a myth. Actually XRX moving to mostly services by 2017 may well have them looking much like Unisys, not a good thing (and not at all like IBM or even HPQ). In 1986, UIS was 1/4 IBM's size in terms of revenues and was fairly profitable. Currently, with about 75% of its revenues from services, it generates 1/30th the revenues of IBM. That's quite a decline, over seven-fold. And its margins are accordingly low. As with XRX, they deliberately chose to slight their hardware heritage and move strongly into services.
Let's look at XRX and do a proforma of it and ACS combined, from 2005 through today. Revenues are essentially flatlined, rising from $20.05b in 2005, peaking at $23.76b in 2008 and then sliding back to $22.2b for 2012, the latter after three years of operating as 'combined synergies' companies. Operating margins for the combined proforma fell from 10.6% in 2005 to 7.5% in 2009, just before the merger. They have also flatlined, at 7.6% in 2012, a loss of 300 basis points in margin in seven years.
This is not to say that one cannot make some good money trading 'the new XRX', at least on an opportunistic basis. It is a Greater Fool investment, good for hedge fund firms and 'in' and 'out' short term traders. Widows, orphans, retirees and long-term buy-and-hold types should definitely steer clear of this one. Its ups and downs resemble those of Kodak, Nortel and Polaroid before they went into their respective end games.
Going forward stay alert for some big charges to their P&L. Their goodwill and intangibles are over 50% of assets, against 30% or so for both HPQ and IBM, both quite high for their industry. That's a potential impairment charge of $4-5 billion for XRX. Also, their average revenues per employee compared to peer companies says they're overstaffed by 25,000 - 30,000 employees, mainly in the developed countries, leading to another likely RIF charge of $2.5-3 billion.
Top 10 Net Payout Yield Stocks For May 2013 [View article]
The question with XRX is, given their past behaviors, is XRX management buying back stock to raise EPS and thusly their bonuses, or do they truly have the average shareholders' interests for the long-term well-being and success of the company at heart?
Wouldn't some or all of those buyback funds be better ploughed back into the company to rebuild rather than milk it?
And what about replenishing the pension fund for retirees?
Will they be able to sustain a significant buyback in light of likely massive termination charges from having to further prune back their workforces (both Technology and Services) by another 20,000 plus to even get close to being viable longer term, their per-employee revenues (and ROIC's) currently running well below those of their Technology and Services competitors?
It's hard to see the relevance of comparing Xerox with either MMM or GE. True MMM did make color copiers back in the late '60's and early '70's, then dropped out. Also, they still offer transparency sheets for overhead projector presentations by the Neanderthals among us. They may even make them for resale by XRX under their brand. As for GE they were active in outsourcing and IT services in the 1990's but threw in the towel on those endeavors years ago, most recent of them being Indian outsourcer Genpact (formerly GECIS).
In any event XRX couldn't be more different than either MMM or GE, both strong and steady types. Seems to me (and apparently a lot of other investors) that XRX, weak and wobbly as it is, is red meat for the Greater Fools and those who make their livings taking advantage of them.
Jamrhino1, I agree that glassdoor.com's ratings lack statistical rigor. But when you see a rating that is the lowest of the low (UB at 27% and her Services head, Lynn Blodgett, at an even lower 22%) one has to explore further. Those ratings are both in six sigma territory, at the low end. When the average CEO glassdoor rating is around 80% and the outstanding ones, e.g., the CEO's of AAPL, ACN, CTSH (just focusing on the BPO/ITO sector for the moment), run in the mid-90's one can conclude that it's NOT just the sour grapes crowd that's weighing in.
Also, parsing the raters' comments - while also discounting the sour grapes elements - does give one insight into the company's various engine rooms and issues that may lie there. IT Services firms rely almost solely on their human capital for their success. They are decidedly not like Products firms, in which a winning product line can carry the company indefinitely. A demoralized work force in IT Services is a recipe for losing.
5 Promising Dividend Stocks Trading Below Book Value [View article]
XRX is primed for a $3-4 billion impairment charge, as a consequence of having overpaid for ACS, especially germane in light of that unit's inability to perform as management had expected (or, perhaps more to the point, wished for).
IT Services is a tough business that XRX/ACS is unprepared for, competency- and culture-wise. Outsourcing is particularly tough, with the price wars initiated by the hungry and resource-rich Indian firms (not to mention IBM) having begun.
In XRX/ACS one sees another Unisys in the making, whose management like Xerox's fooled itself into backsliding out of its equipment business in favor of focusing on IT Services in hopes of salvation, only to see the company shrink to a fraction of its former size and market cap, to the great dismay of its shareholders.
CNBC recently reported that UB 'earned' the lowest - by far - employee approval rating in 2012 of any large company tech executive, as rated by glassdoor.com (27%). Her head of Services, Lynn Blodgett, got panned even worse, with a rating of 22% approval. Big morale problems in XRX. Not good for a company trying to become primarily a services firm (whose primary asset is its human capital). Whitman (HPQ CEO) and Rometty (IBM) each score in the mid-80s. Outsourcing rivals Accenture and Cognizant CEOs each rate in the mid-90s per glassdoor.com. UB and her Services head (or alternatively Xerox as a company) cannot last with morale so low.
A very good synopsis. BPO and ITO demand is softening somewhat, for a variety of reasons. Contract durations are also in decline. Yet some players, notably Accenture and TCS, are able to claim significant current growth. Players such as these, plus INFY, WIT and CTSH, have good headroom in their margins and free cash flows to do relatively well in the price wars that are under way. They are also aggressively offering value-added application services which differentiate them from run-of-the-mill 'lift, shift and rebadge' outsourcers. IBM as well, especially given the yield from its high-margin software business, which it will work hard to defend. On the outs will be the lower tier players, e.g., CSC, HPQ, Dell and ACS/Xerox, not to mention Genpact, Unisys et al. HCL and others of its kind may become permanently stuck in the middle, squeezed to marginality.
To evaluate this confusing marketplace one must understand just why the various categories of players are in the outsourcing business in the first place. Only then can one gauge the lengths each must go to in order to defend its position in a price war. There are quite significant differences in their rationales and abilities/routes to defend and compete.
Xerox (XRX) has hired ADT CFO Kathryn Mikells to be its new CFO, effective May 2. Her predecessor, Luca Maestri, recently left for Apple. ADT says it has begun a search for a replacement; Mikells will stay with the company through its May 1 FQ2 report. (Xerox PR) (ADT PR) [View news story]
UB is desperate, plus she says she 'needs' (her own words, describing on the earnings call the sort of CFO she wanted as a replacement for Luca, himself a highly competent, disciplined and conscientious person) a CFO who is "...extremely flexible...". Is that what she got in her new CFO?
Accenture Boasts High Returns And A Strong Dividend [View article]
In evaluating the direction/wisdom of Accenture's actions as to share buybacks and dividend increases, one must keep in mind that significant numbers of its co-founders (its pre-2001 IPO active equity partners, many of whom are now retired) plus its post-IPO senior executives (both active and retired) remain substantial shareholders. It is to their advantage to see ACN's earnings spread over an ever-diminishing number of shares outstanding, perhaps even to the point of achieving a de facto 'reverse IPO', reverting over time to 'private' status, a sort of slow-motion DELL.
Xerox: A High Quality Stock At A Dirt Cheap Valuation [View article]
I do not see any sort of 'moat' in Xerox. In Technology I see their principal cash cow in severe secular decline a la Kodak (equipment placements rapidly dwindling YOY). Add to that an ill-advised and too rich venture (ACS) that is uncompetitive, yielding a price-to-sales ratio of 0.55 or so (in 2009 pre-acquisition it was at 0.65, down from 1.65 back in 2004 when founder Darwin Deason started preparing it for sale). XRX was the fifth and last to kick the tires on ACS. They took the bait, ACS management having pumped sales 8% YOY from 2004 through 2009, while depressing market cap 8% YOY and net margins percentages 14.7% YOY in the same time period. To goose sales they may have booked a lot of marginal business as 'lipstick' on their offering (a 'Brooklyn Bridge' deal?). By contrast rivals INFY, WIT and CTSH (the same revenues as ACS) have lofty price-to-sales ratios of between 3 and 4, several times that of ACS, while ACN and IBM (much larger and more diverse) enjoy P/S ratios in the 2.0 and up range. Is ACS their 'moat'?
Run the Altman Z-score model on XRX today and it comes up with a 47% probability of bankruptcy at an 80% confidence level. F-score, hazard, and neural network models yield the same direction. XRX's Z-score puts them high in the 'red zone', well above those for DELL, LXK and HPQ for instance. By contrast ACN, WIT and INFY come in at the 1% probability of bankruptcy range. PBI, another hardware/servcies company in secular decline on the hardware side and often comped against XRX, sports a yellow zone 21% probability of bankruptcy within the next two years. UIS similarly is at 32%. As further contrast EMC sits at 1%, MSFT at 2%, CRM at 1% and CSCO at 16%, the latter on the green edge of the yellow zone but improving its position.
An LBO or private equity buyout doesn't look likely, given their having paid too much for ACS and the resulting high debt and intangibles, which appear not to yielding much value and are thus highly suspect and likely impaired. I must admit, however, that a share price of say $4 and a threatened delisting from the S&P 500 may attract vulture or two.
Xerox: Review Of Growth, Buybacks And R&D [View article]
GH1616, run the Bemeish M-score model on XRX (the 'M' stands for 'manipulator') and you would have to say that the accounting cockroaches left town with Allaire & Co. (although as I pointed out earlier Burns did say in her latest earnings call that she wanted to replace Maestri with a CFO who would be - her words - 'extremely flexible'; keep an eye on their M-score, it's easy to do on various web sites). But for now at least their accounting is probably not being manipulated.
tomfrompv, you are right, Burns is XRX's EEOPocracy (rhymes with 'hypocrisy') poster child and crowning achievement - a minority female from NY's lower East Side raised by a single mother, the first such as CEO of a major US company. She had zero line experience before being appointed president, never ran a market-facing operating unit, never had to make a payroll, sold not even a ream of copier paper. Untested and probably unqualified (unless, of course, you and your investors reside in an EEOPocracy utopia). This self-indulgent culture - with its waste of time and resources managing upwards and low morale and apathy,is the principal root cause of XRX's likely downfall. It's the Peter Principle deliberately writ large as policy, corporate death by a thousand unwarranted promotions of underqualified people in a multigeneration social experiment with little regard for customer or investor. (No, I am not a former or current employee nor does a family member or friend fall into one of those categories. I'm just an investor who periodically goes long or short on XRX doing his homework.)
Run the Altman Z-score on the company. It will tell you that XRX has up to a 47% probability (at an 80% confidence level) of going belly up within the next two years. Run an F-score and you'll get similar news. Then run a hazard and/or neural network model and you'll get pretty much the same answer.
Looks to me a lot like Kodak as it rolled up to the edge of the deadpool.
Xerox: Review Of Growth, Buybacks And R&D [View article]
Responding to Tom's queries: a. I voice opinions under various noms de plume on a variety of stressed companies, my background being forensics; b. my 'ax to grind' is to alert investors to questionable situations that deserve deeper scrutiny, and to invite fact-based rebuttal to test my thinking.
XRX has a number of at least yellow flags on it: 1) They had a run-in with the SEC on misreporting earnings over a four year period back in the early 2000s. It almost took them down. Ms. Burns and others currently at the top were part of that senior management group. 2) In the most recent earnings call Burns voiced her need for an "extremely flexible" CFO to replace Maestri. An "extremely flexible" CFO (Romeril) was who got them into trouble back then. Not good news for investors as a hiring criterion I would say. 3) Equipment placements fell by 14% in 2012, continuing similar drops from prior years. Do the math. That amounts to a five-year half-life for their principal and by far largest cash cow. New products? All those patents? Look at the track record. 4) Services bookings fell YOY by 26% in 2012, while at the same time management projects strong growth in 2013. On the other hand, IBM's Services bookings fell only 2% and they're projecting a flat year for 2013. Huh? Who's got it right? Even jumbo deals don't swing the numbers all that much in a 100,000+ person firm. 5) XRX acknowledges that the term of their Services deals is now at 3 years, down from 5. At the same time they claim that 85% of their projection for 2013 revenues is booked (contracted) firm backlog. IBM claims that only 70% of theirs is booked contracted backlog. Is ACS really that much better than IBM? 6) Their proliferation of patents makes for nice PR but does it really mean all that much? Patents on business methods in particular are controversial as to their validity. They are cheap to get (for now) but expensive and difficult to defend and often are easily circumvented.
This may all be an unwarranted ringing of the alarm bells. I hope so for those who are long XRX, especially for their retirees and employees. There's one thing for certain... we'll eventually all see and either enjoy or rue the outcome.
(I currently have no position in XRX nor do I anticipate having one any time soon.)
Xerox: Review Of Growth, Buybacks And R&D [View article]
Many of XRX's employees do not share your opinion. There are big morale problems in this company, reflecting their business internals and lack of confidence in their future. According to glassdoor.com's employee ratings of CEOs of major tech companies, XRX's Ursula Burns is the extreme outlier of the bunch, at rock bottom 27% approval. Her head of Services, Lynn Blodgett, gets an even lower rating of 22%. Only Antonio Perez of Kodak is in that territory, at 23% approval. In contrast, Meg Whitman of likewise troubled HPQ comes in at 80% approval rating. At the other end of the spectrum the CEOs of consistent high performers such as AAPL and ACN come in at 94%. There's more than simply a random correlation here. Unhappy employees do not build successful companies.
Xerox Is A Survivor Even Without Maestri [View article]
ACS needs XRX more than vice versa. A value trap within a value trap, a sort of Russian doll. Buyout probably not in the cards without XRX writing down a great deal of their intangibles from that unwise acquisition. As for Maestri being hired away by AAPL, it takes two to tango. Do you think perhaps he sees the downsides of remaining at his post at XRX? How marketable is a youngish CFO who chooses to go down with the ship? Check out glassdoor.com where his boss Ursula Burns is rated by XRX employees at 27% approval, by far the lowest of tech industry CEOs. Might that be part of his motivation to leave town?
40% Undervalued, Xerox A Possible Takeover Target For Dell, HP [View article]
Ursula Burns, in paying so much for ACS, is safe. Nobody would pay for the high intangibles on their balance sheet. Don't look for a bailout. Dell bought Perot and not ACS (another Texas firm) because they dug deep into the latter's financials and operations and did not like what they saw. XRX did not, they just shot first and are now in the process of asking the hard questions. If Burns is tapped by Obama for Sec'y of Commerce, look for her replacement as CEO to take a multi-billion dollar writedown of the ACS intangibles, as Meg Whitman did with HPQ's EDS and Autonomy acquisitions. If and when that happens XRX will rebound, either from being acquired or by regaining investor confidence.
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Let's look at XRX and do a proforma of it and ACS combined, from 2005 through today. Revenues are essentially flatlined, rising from $20.05b in 2005, peaking at $23.76b in 2008 and then sliding back to $22.2b for 2012, the latter after three years of operating as 'combined synergies' companies. Operating margins for the combined proforma fell from 10.6% in 2005 to 7.5% in 2009, just before the merger. They have also flatlined, at 7.6% in 2012, a loss of 300 basis points in margin in seven years.
This is not to say that one cannot make some good money trading 'the new XRX', at least on an opportunistic basis. It is a Greater Fool investment, good for hedge fund firms and 'in' and 'out' short term traders. Widows, orphans, retirees and long-term buy-and-hold types should definitely steer clear of this one. Its ups and downs resemble those of Kodak, Nortel and Polaroid before they went into their respective end games.
Going forward stay alert for some big charges to their P&L. Their goodwill and intangibles are over 50% of assets, against 30% or so for both HPQ and IBM, both quite high for their industry. That's a potential impairment charge of $4-5 billion for XRX. Also, their average revenues per employee compared to peer companies says they're overstaffed by 25,000 - 30,000 employees, mainly in the developed countries, leading to another likely RIF charge of $2.5-3 billion.
Top 10 Net Payout Yield Stocks For May 2013 [View article]
Wouldn't some or all of those buyback funds be better ploughed back into the company to rebuild rather than milk it?
And what about replenishing the pension fund for retirees?
Will they be able to sustain a significant buyback in light of likely massive termination charges from having to further prune back their workforces (both Technology and Services) by another 20,000 plus to even get close to being viable longer term, their per-employee revenues (and ROIC's) currently running well below those of their Technology and Services competitors?
Touching Base With 3M [View article]
In any event XRX couldn't be more different than either MMM or GE, both strong and steady types. Seems to me (and apparently a lot of other investors) that XRX, weak and wobbly as it is, is red meat for the Greater Fools and those who make their livings taking advantage of them.
Xerox Management Discusses Q1 2013 Results - Earnings Call Transcript [View article]
Also, parsing the raters' comments - while also discounting the sour grapes elements - does give one insight into the company's various engine rooms and issues that may lie there. IT Services firms rely almost solely on their human capital for their success. They are decidedly not like Products firms, in which a winning product line can carry the company indefinitely. A demoralized work force in IT Services is a recipe for losing.
5 Promising Dividend Stocks Trading Below Book Value [View article]
IT Services is a tough business that XRX/ACS is unprepared for, competency- and culture-wise. Outsourcing is particularly tough, with the price wars initiated by the hungry and resource-rich Indian firms (not to mention IBM) having begun.
In XRX/ACS one sees another Unisys in the making, whose management like Xerox's fooled itself into backsliding out of its equipment business in favor of focusing on IT Services in hopes of salvation, only to see the company shrink to a fraction of its former size and market cap, to the great dismay of its shareholders.
Xerox Management Discusses Q1 2013 Results - Earnings Call Transcript [View article]
Infosys: Down But Not Out [View article]
To evaluate this confusing marketplace one must understand just why the various categories of players are in the outsourcing business in the first place. Only then can one gauge the lengths each must go to in order to defend its position in a price war. There are quite significant differences in their rationales and abilities/routes to defend and compete.
Xerox (XRX) has hired ADT CFO Kathryn Mikells to be its new CFO, effective May 2. Her predecessor, Luca Maestri, recently left for Apple. ADT says it has begun a search for a replacement; Mikells will stay with the company through its May 1 FQ2 report. (Xerox PR) (ADT PR) [View news story]
Accenture Boasts High Returns And A Strong Dividend [View article]
Xerox: A High Quality Stock At A Dirt Cheap Valuation [View article]
Run the Altman Z-score model on XRX today and it comes up with a 47% probability of bankruptcy at an 80% confidence level. F-score, hazard, and neural network models yield the same direction. XRX's Z-score puts them high in the 'red zone', well above those for DELL, LXK and HPQ for instance. By contrast ACN, WIT and INFY come in at the 1% probability of bankruptcy range. PBI, another hardware/servcies company in secular decline on the hardware side and often comped against XRX, sports a yellow zone 21% probability of bankruptcy within the next two years. UIS similarly is at 32%. As further contrast EMC sits at 1%, MSFT at 2%, CRM at 1% and CSCO at 16%, the latter on the green edge of the yellow zone but improving its position.
An LBO or private equity buyout doesn't look likely, given their having paid too much for ACS and the resulting high debt and intangibles, which appear not to yielding much value and are thus highly suspect and likely impaired. I must admit, however, that a share price of say $4 and a threatened delisting from the S&P 500 may attract vulture or two.
Xerox: Review Of Growth, Buybacks And R&D [View article]
tomfrompv, you are right, Burns is XRX's EEOPocracy (rhymes with 'hypocrisy') poster child and crowning achievement - a minority female from NY's lower East Side raised by a single mother, the first such as CEO of a major US company. She had zero line experience before being appointed president, never ran a market-facing operating unit, never had to make a payroll, sold not even a ream of copier paper. Untested and probably unqualified (unless, of course, you and your investors reside in an EEOPocracy utopia). This self-indulgent culture - with its waste of time and resources managing upwards and low morale and apathy,is the principal root cause of XRX's likely downfall. It's the Peter Principle deliberately writ large as policy, corporate death by a thousand unwarranted promotions of underqualified people in a multigeneration social experiment with little regard for customer or investor. (No, I am not a former or current employee nor does a family member or friend fall into one of those categories. I'm just an investor who periodically goes long or short on XRX doing his homework.)
Run the Altman Z-score on the company. It will tell you that XRX has up to a 47% probability (at an 80% confidence level) of going belly up within the next two years. Run an F-score and you'll get similar news. Then run a hazard and/or neural network model and you'll get pretty much the same answer.
Looks to me a lot like Kodak as it rolled up to the edge of the deadpool.
Xerox: Review Of Growth, Buybacks And R&D [View article]
a. I voice opinions under various noms de plume on a variety of stressed companies, my background being forensics;
b. my 'ax to grind' is to alert investors to questionable situations that deserve deeper scrutiny, and to invite fact-based rebuttal to test my thinking.
XRX has a number of at least yellow flags on it:
1) They had a run-in with the SEC on misreporting earnings over a four year period back in the early 2000s. It almost took them down. Ms. Burns and others currently at the top were part of that senior management group.
2) In the most recent earnings call Burns voiced her need for an "extremely flexible" CFO to replace Maestri. An "extremely flexible" CFO (Romeril) was who got them into trouble back then. Not good news for investors as a hiring criterion I would say.
3) Equipment placements fell by 14% in 2012, continuing similar drops from prior years. Do the math. That amounts to a five-year half-life for their principal and by far largest cash cow. New products? All those patents? Look at the track record.
4) Services bookings fell YOY by 26% in 2012, while at the same time management projects strong growth in 2013. On the other hand, IBM's Services bookings fell only 2% and they're projecting a flat year for 2013. Huh? Who's got it right? Even jumbo deals don't swing the numbers all that much in a 100,000+ person firm.
5) XRX acknowledges that the term of their Services deals is now at 3 years, down from 5. At the same time they claim that 85% of their projection for 2013 revenues is booked (contracted) firm backlog. IBM claims that only 70% of theirs is booked contracted backlog. Is ACS really that much better than IBM?
6) Their proliferation of patents makes for nice PR but does it really mean all that much? Patents on business methods in particular are controversial as to their validity. They are cheap to get (for now) but expensive and difficult to defend and often are easily circumvented.
This may all be an unwarranted ringing of the alarm bells. I hope so for those who are long XRX, especially for their retirees and employees. There's one thing for certain... we'll eventually all see and either enjoy or rue the outcome.
(I currently have no position in XRX nor do I anticipate having one any time soon.)
Xerox: Review Of Growth, Buybacks And R&D [View article]
Xerox Is A Survivor Even Without Maestri [View article]
40% Undervalued, Xerox A Possible Takeover Target For Dell, HP [View article]
ACS intangibles, as Meg Whitman did with HPQ's EDS and Autonomy acquisitions. If and when that happens XRX will rebound, either from being acquired or by regaining investor confidence.