Why Xerox Stock Dropped 12% on Tuesday

Xerox Holdings (NASDAQ: XRX) shares tumbled 11.7% through 10:25 a.m. ET Tuesday after the company missed analyst forecasts for quarterly earnings but beat on sales.

Heading into its fiscal Q4 report, analysts predicted the office printer company would earn $0.49 per share on just under $1.6 billion in sales. In fact, Xerox reported just over $1.6 billion in sales. However, its earnings for the final quarter of fiscal 2024 were a disappointing $0.36 per share.

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Xerox Q4 earnings

Sales declined nearly 9% year over year despite the beat. On earnings, not only did the company "miss," but its miss was also a non-GAAP number that doesn't count what the company considers one-time costs. Calculated according to generally accepted accounting principles (GAAP), Xerox reported a $0.20-per-share Q4 loss.

All things considered, this was a disappointing end to a disappointing year for Xerox. Over the course of fiscal 2024, Xerox suffered nearly a 10% decline in sales. Full-year revenue was only $6.2 billion. GAAP losses for the year were a staggering $10.75 per share.

Admittedly, $8.17 per share of these losses came in the form of an "after-tax non-cash goodwill impairment." And Xerox did end up generating positive free cash flow for the year -- $467 million in total. That's less than the "at least $600 million" that Xerox hoped to generate in 2024, however.

Is Xerox stock a sell?

Despite the bad news, CEO Steve Bandrowczak insists he "position[ed] Xerox for long-term, sustainable growth" in 2024, and he predicts better news in 2025. The problem with this prediction is that the numbers don't add up. Turning to 2025 guidance, Bandrowczak says Xerox will have "low-single-digit" sales growth. Free cash flow, however, will range from only $350 million to $400 million.

That's not growth. That's shrinkage -- and on expanding sales!

Granted, at a price-to-free-cash-flow ratio of only 3, Xerox stock is probably too cheap to ignore right now. It's probably a bargain at this price. But I still can't quite make myself buy a stock performing so poorly.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.