XRX Q3 Deep Dive: Acquisition Integration and Tariff Pressures Shape Outlook

Document technology company Xerox (NASDAQ:XRX) fell short of the markets revenue expectations in Q3 CY2025, but sales rose 28.3% year on year to $1.96 billion. Its non-GAAP profit of $0.20 per share was significantly above analysts’ consensus estimates.

Is now the time to buy XRX? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Xerox’s third quarter was marked by the ongoing integration of recent acquisitions and persistent macroeconomic headwinds. While sales grew meaningfully due to the inclusion of Lexmark and ITsavvy, management acknowledged that underlying revenue, adjusting for these deals, declined as customers delayed equipment purchases. CEO Steven Bandrowczak described the quarter as disappointing, citing “continued disruption associated with tariff and government funding uncertainty,” which primarily impacted print equipment sales. Notably, the company’s strong performance in IT Solutions partially offset these pressures.

Looking ahead, Xerox’s forward guidance is shaped by expectations for recovery in delayed equipment purchases and continued double-digit growth in IT Solutions. Management highlighted plans for further synergy realization from the Lexmark integration and ongoing cost optimization efforts. CFO Mirlanda Gecaj noted, “We still expect to continue to offset the impact of tariffs in future periods with price increases and changes to our supply chain,” but cautioned that macroeconomic and policy uncertainties will continue to affect timing and magnitude of recovery.

Key Insights from Management’s Remarks

Xerox’s management pointed to acquisition integration, operational streamlining, and IT Solutions momentum as the main drivers of recent results and future plans, while noting that tariff and funding challenges weighed on the core print business.

• Lexmark and ITsavvy integration: The full-quarter inclusion of Lexmark and ITsavvy drove headline growth but masked an 8% pro forma revenue decline, emphasizing the importance of acquisition synergies and integration pace.
• Synergy realization accelerated: Management increased expected Lexmark-related cost synergies by $50 million, raising the total to $300 million, with about half anticipated to be realized in 2026, benefiting both gross and operating margins.
• Tariff and funding headwinds: Tariff-related costs—estimated at $35 million for 2025—combined with delays in government-funded purchasing, led to weaker print equipment revenue, with management taking a selective approach to price increases to mitigate these pressures.
• IT Solutions strength: The IT Solutions segment showed double-digit pro forma revenue growth, buoyed by demand for cloud, networking, and public sector projects. Cross-selling to legacy Xerox clients remains a bright spot.
• Operational changes and leadership shifts: Xerox appointed Lexmark executives to key leadership roles and consolidated global business services, aiming to standardize operations and leverage offshore capability centers for cost efficiency and improved execution.

Drivers of Future Performance

Management expects delayed equipment sales to recover once government funding and tariff policies stabilize, with IT Solutions growth and synergy capture as key drivers.

• Equipment sales recovery: Management believes that once federal and state funding uncertainties and tariff issues are resolved, delayed equipment orders—especially from commercial and government clients—will materialize, supporting top-line stabilization.
• IT Solutions growth: The company expects IT Solutions to continue outperforming its underlying markets, driven by expanded offerings in cloud, networking, and cybersecurity, as well as increased cross-selling to the existing print customer base.
• Synergy and cost optimization: Management aims to realize substantial cost savings from the Lexmark integration and ongoing reinvention program, with incremental savings expected to flow through to margins despite continued headwinds from tariffs and product costs.

Catalysts in Upcoming Quarters

In the coming quarters, our analysts will monitor (1) the pace at which delayed equipment purchases rebound as government and macroeconomic uncertainties ease, (2) the realization and impact of Lexmark integration synergies on margins and operational efficiency, and (3) the continued momentum and cross-selling success of the IT Solutions business. Progress in rolling out new product launches and managing tariff costs will also be critical for tracking Xerox’s execution against its stated strategy.

Xerox currently trades at $3.25, down from $3.42 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free for active Edge members).

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