10-Q: Xerox Holdings Reports Q2 2026 Earnings Beat

Xerox Holdings Corporation announced its second quarter 2026 financial results, showing a significant increase in total revenue and a return to net income, driven by the Lexmark acquisition and transformation efforts.

Summary

• Xerox Holdings Corporation reported total revenues of $1.92 billion for the second quarter of 2026, a 22.0% increase year-over-year, largely due to the Lexmark acquisition.
• Net income for the quarter was $13 million, a significant improvement from a net loss of $106 million in the prior year's second quarter.
• Adjusted operating income margin improved to 10.6% from 3.7% in the prior year's second quarter.
• The company's Print and Other segment saw revenue increase by 26.9% to $1.73 billion, while the IT Solutions segment revenue decreased by 8.9% to $194 million.
• The company repurchased $194 million of its senior unsecured notes and $6 million of its senior secured notes, recognizing a net gain of $95 million on early extinguishment of debt.
• Operating cash flows are now expected to be approximately $340 million, a decrease from previous guidance of $350 million.

Sentiment

Score: 6

Explanation: StockSavvy.ai views this filing as cautiously optimistic, with improvements in profitability and revenue driven by acquisitions and cost-saving measures, though legacy business challenges persist.

Positives

• Total revenue increased by 22.0% to $1.92 billion in Q2 2026 compared to Q2 2025, driven by the Lexmark acquisition.
• The company returned to profitability with a net income of $13 million in Q2 2026, compared to a net loss of $106 million in Q2 2025.
• Adjusted operating income margin improved significantly to 10.6% in Q2 2026 from 3.7% in Q2 2025.
• Gross margin increased by 7.2 percentage points to 35.8% in Q2 2026, benefiting from IEEPA tariff receivables and transformation efforts.
• The Print and Other segment showed strong revenue growth of 26.9%, indicating successful integration of Lexmark.
• The company successfully managed its debt by repurchasing $194 million in senior unsecured notes and $6 million in senior secured notes.

Negatives

• The IT Solutions segment revenue declined by 8.9% to $194 million in Q2 2026.
• Legacy Xerox revenue declined by 9.6% in actual currency, indicating ongoing challenges in the core business.
• Operating cash flows are now expected to be $340 million, a decrease from the previously guided $350 million.
• Non-financing interest expense increased significantly to $100 million in Q2 2026 from $55 million in Q2 2025, impacting profitability.
• Research, Development, and Engineering (RD&E) expenses increased as a percentage of revenue, partly due to the Lexmark acquisition.

Risks

• The company faces ongoing challenges in its legacy Xerox business, with declining installations and service revenue.
• Integration of the Lexmark acquisition, while showing positive revenue impact, also contributed to increased RD&E expenses.
• Higher interest expenses due to recent financing arrangements could continue to pressure profitability.
• The company's reliance on foreign currency translation for revenue and expenses exposes it to exchange rate fluctuations.
• Potential for future impairment charges on goodwill if the company's performance varies from current expectations.

Future Outlook

The company anticipates continued operational and financial improvement in the second half of 2026 and beyond, driven by new product launches, partner validation, and a focused go-to-market approach, despite ongoing challenges in legacy businesses.

Management Comments

• The Supreme Court ruling on IEEPA tariffs provided a meaningful benefit to our cost structure in the second quarter 2026.
• Second quarter 2026 reflects the continued benefits of the Lexmark Acquisition and Xerox's transformation efforts.
• Pro forma gross margins expanded year-over-year for the second consecutive quarter, driven by integration synergies, cost discipline, and an increasingly unified operating model.

Industry Context

StockSavvy.ai notes that Xerox's performance is being influenced by broader industry trends such as digital transformation and the ongoing consolidation within the printing and IT services sectors. The successful integration of Lexmark is a key factor in Xerox's current strategy to compete effectively.

Comparison to Industry Standards

• Xerox's gross margin of 35.8% in Q2 2026 is competitive within the diversified technology and services industry, though specific comparisons depend on the exact business mix.
• The increase in adjusted operating income margin to 10.6% indicates improved operational efficiency, which is a positive trend across the industry.
• The decline in IT Solutions revenue is a concern, as many competitors in this space are experiencing growth, suggesting potential market share challenges for Xerox in this segment.

Legal Proceedings

• The company is involved in various claims, lawsuits, investigations, and proceedings concerning securities law, governmental entity contracting, servicing and procurement law, intellectual property law, environmental law, employment law, ERISA, and other laws and regulations.
• Brazilian operations are subject to numerous governmental assessments related to indirect and other taxes, which the company is disputing.

Stakeholder Impact

• Shareholders may see improved value due to the return to profitability and positive revenue trends, though legacy business challenges remain.
• Employees may be impacted by ongoing transformation efforts and workforce reduction actions.
• Creditors and lenders will monitor the company's debt levels and ability to service its obligations, particularly with increased non-financing interest expenses.

Next Steps

• Continue to integrate Lexmark operations to realize further synergies.
• Focus on improving performance in the legacy Xerox business segments.
• Monitor and manage the impact of higher interest expenses and transformation costs.
• Evaluate opportunities for further optimization of the capital structure.

Key Dates

Recommendation

While the company shows signs of recovery with improved revenue and profitability driven by acquisitions and cost controls, the ongoing challenges in legacy segments and increased interest expenses warrant a cautious approach. Further evidence of sustained improvement and successful integration of Lexmark will be needed to justify a more positive outlook.

Keywords

Xerox Holdings, Xerox Corporation, Form 10-Q, Quarterly Report, Financial Statements, Lexmark Acquisition, Joint Venture, Transformation Efforts