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Xerox Discusses Three Main Challenges, Plus 9-Series for Mid-Range Cost-Competitiveness and Surging Entry-Level Demand

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Xerox leadership recently held a conference call to discuss its second-quarter financial results, notable in that the company returned to profitability for the first time in several quarters.

The company discussed its three main challenges, as well how its new Xerox-built 9-Series gives it better cost-competitiveness, but how demand for mid-range A3 may not bounce back, and how entry-level demand is surging, creating a backlog.

Stabilize Revenue, Grow Profit, Retire Debt

Pastor began by discussing some of the hurdles Xerox is facing: “We are running a race. The race has three hurdles. The hurdles are our 2028 debt maturities, our 2029 debt maturities and our 2030 debt maturities.”

Pastor explained that Xerox’s first priority is stabilizing revenue – in other words “how fast the company runs.” Its second priority is increasing profitability – or how high it jumps. Its third priority is reducing leverage (debt), or about lowering the height of the hurdles. “Every action we take, every decision we make is now framed by these three priorities because this is how we win the race. If an initiative doesn’t advance one of these three priorities, then we don’t pursue it, period,” Pastor said

The Xerox CEO noted that second-quarter revenue, which includes Lexmark results, was $1.92 billion, up 22 percent year-over-year.

Also on the plus side, Xerox reduced its total debt by $223 million and improved both its current, gross, and net leverage ratios, as well as its year-end leverage targets. Xerox also raised its full year 2026 revenue guidance by approximately $100 million on higher expectations for its Print and Other business, despite higher computer memory and oil costs.

On the negative side, mid-range office copier/MFP demand was lower, but entry-level office copier/MFP and production-print segments’ demand was higher.

Entry-Level Backlog

Pastor noted that entry-level demand was higher than Xerox had forecast, and it couldn’t fully supply it, pushing installs and revenue into later quarters and creating a backlog it expects to fill over the second half of the year. 

Pastor also noted that in June, Xerox launched its first hardware under the unified Xerox-Lexmark brand, a new entry color printer and MFP lineup, the Xerox 240, 245, and 255a, which target the small workgroup segment, one of the fastest-growing areas in print. These products bring the combined capabilities of Xerox and Lexmark to market for the first time and sharpen Xerox’ competitiveness.

Xerox-Built 9-Series Offers Better Cost Competitiveness

Pastor also spoke about Xerox’s 9-Series of office MFPs, which he believes will drive Xerox’s mid-range success over the next several years. Historically, Xerox sourced all mid-range equipment from a third party (Fuji-Xerox). This limited its ability to manage cost, working capital, availability and ultimately, competitiveness. “The 9-Series changes that,” Pastor said, adding “This is a platform we built ourselves as a direct result of the Xerox and Lexmark combination, and it gives us something we’ve never had in this segment, control. Here is what that means in practice.”

The 9-Series cost Xerox less to build with stronger economics across the platform. For clients, a Xerox internal analysis shows a total cost of ownership advantage that becomes increasingly compelling at faster print speeds across equipment, service, and supplies. 

However, Pastor explained that demand for the mid-range A3 segment is soft and may not recover:  “The honest soft spot for us is the mid-range, it’s A3, and we’re not really counting on that segment to bounce back.”

IT Solutions Business

According to Pastor, billings for Xerox’s IT Solutions business grew again in the second quarter. Pastor said Xerox is rebuilding its sales force for IT Solutions, adding technical sales engagement, and sharpening its cross-selling. It expects a better third and fourth quarter for IT Solutions.

It also expects the long-term prospects for IT Solutions to remain strong. The market opportunity is said to be large and growing. The company’s higher full-year 2026 revenue guidance assumes year-over-year increases for both equipment and IT Solutions in the second half of 2026.

Revised Lexmark Integration Synergy Guidance

Pastor also noted that Xerox raised its Lexmark integration synergy guidance to at least $350 million, a $50 million increase from its prior target, primarily driven by incremental IT efficiencies, expanded sourcing, and logistics benefits, and the migration of selected service delivery activities into lower-cost shared-service operations. This, along with higher revenue, has allowed Xerox to offset a large portion of the additional memory and oil price increase that have occurred since Xerox first provided guidance six  months ago.

Reduced Leverage

Pastor explained that in addition to paying back its $125 million bridge loan at the end of June, Xerox retired $99 million of its debt in the open market in the second quarter, mainly through the repurchase of its 2028 debt notes. Over the past two quarters, Xerox has reduced its 2028 maturity wall by nearly $200 million, lowering its debt by more than 25 percent during the first half of 2026.

Remaining in Production Print

Pastor noted that when Xerox retired three legacy production-print products in 2024, some of its competitors tried to spin it as Xerox exiting production. This is wrong however and Xerox is investing in production print and reshaping its portfolio, moving into higher-growth segments and bringing new technology to market. Over the coming quarters, it will introduce new production print systems. 

U.S. Tariff Refund Not Included in Second-Quarter Results

Xerox CFO Chuck Butler noted that Xerox recognized a $105 million U.S. IEEPA tariff refund receivable in the second quarter, which is not a windfall, but the recovery of real costs Xerox had already absorbed, and had been paying for the past 12 months.

Butler also explained that rather than wait for the U.S. government to process the claim, it sold the receivable to a third-party buyer for $80 million in cash, a portion of which Xerox used to retire debt. 

Note that because the tariff-refund claims had not yet been processed by the end of the  second quarter end, the $80 million is recorded in financing, rather than operating cash flow, which means it provided no benefit to second-quarter cash flow. 

Butler noted that Xerox raised its full-year 2026 forecast for revenue to $7.6 billion from $7.5 billion, reflecting the company’s improved expectations for its Print and Other business due to an improved equipment outlook for the second half, and better supplies outlook. 

However, if current high prices for oil and memory persist, there could be modest risk to the company’s updated profit and cash outlook. 

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