Shares of Xerox Corporation XRX have declined 18.4% over the past year, against 10.3% rally of the industry’s it belongs to.

The company reported mixed second-quarter 2018 results, wherein the bottom line lagged the Zacks Consensus Estimate but the top line surpassed the same. Adjusted earnings per share of 80 cents missed the consensus mark by 12 cents and declined 6 cents from the year-ago quarter. Total revenues of $2.51 billion outpaced the consensus mark by $1.7 million and was down 2.2% year over year and 4% on a constant currency basis.

Xerox has a decent earnings surprise history, having surpassed estimates in two of the trailing four quarters, with an average beat of 1.9%.

Higher Costs of the Failed Deal

Xerox’s bottom line in the second quarter was hurt by higher costs related to the failed deal with Fujifilm Holdings Corp. Xerox was sued by Fujifilm demanding more than $1 billion as punitive damages and a $183 million as merger termination fee.

The deal, which was announced in January 2018, was called off by Xerox in May after activist investors — Carl Icahn and Darwin Deason — stated it undervalued the company. Among other things, the company also cited unresolved accounting issues with Fujifilm as a reason to end the merger.

Xerox then made changes to the board of directors and replaced the then chief executive officer, Jeff Jacobson, with Icahn-backed John Visentin.

Xerox Corporation Revenue (TTM)

Grappling With Lower Demand

Advancements in IT have replaced the traditional means of sending and storing information by digital media. As a result, Xerox is grappling with decreased demand for paper-related systems and products while its attempts to leverage the business process outsourcing market failed to drive growth.

Zacks Rank & Stocks to Consider

Currently, Xerox is a Zacks Rank #4 (Sell) stock.

A few better-ranked stocks in the broader Business Services sector include Genpact G, Automatic Data Processing ADP and Paychex, Inc. PAYX, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term expected EPS (three to five years) growth rate for Genpact, Automatic Data Processing and Paychex is 10%, 11.3% and 8.2%, respectively.

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