Xerox Pivots to AI-Led Services as IT Bookings Surge 32%

Xerox accelerates transformation under new CEO Louie Pastor, leveraging AI and Lexmark synergies to post adjusted EPS of $0.43, beating consensus by 59%.

Xerox is accelerating its transformation from a legacy printer manufacturer into a software-driven services provider, with new CEO Louie Pastor — who took the reins in late March 2026 — placing artificial intelligence at the center of the strategy. The company is simultaneously slimming down its balance sheet, and early results from the pivot are already showing up in the numbers.

The integration of Lexmark, acquired in 2025, serves as the cornerstone of the revamped business model. For the full year 2026, Xerox is targeting revenue north of $7.5 billion, with adjusted operating profit expected to land between $450 million and $500 million. Management anticipates cost savings of up to $300 million from the Lexmark deal and broader restructuring efforts, including roughly $200 million in synergies from merging sales operations.

A key growth driver is the newly launched “IT as a Service” offering, built on the ServiceNow platform and aimed at mid-market enterprises. Demand is already building: IT solutions bookings jumped 32% in the first quarter compared with a year earlier, while billings rose 21%. The IT solutions segment posted a profit of $6 million, which Pastor highlighted as evidence that the shift toward higher-margin software revenue is gaining traction.

Despite reporting a GAAP net loss of $105 million, the underlying operating picture was far brighter. Adjusted earnings per share came in at $0.43, easily beating consensus estimates of $0.27. The adjusted operating margin improved by 240 basis points to 3.9%, reflecting the early benefits of the cost-cutting program.

On the balance sheet front, Xerox is making headway in reducing debt. A joint venture for intellectual property with TPG Angelo Gordon generated $450 million in cash, which was used to repurchase bonds maturing in 2028. The company also bought back $101 million of its own notes during the first quarter. Liquidity stood at $637 million at the end of the period, though total debt — much of it tied to the financing business — remains substantial. Management aims to cut leverage by roughly 1.5 turns by year-end through a combination of operational growth and disciplined repayment.

Free cash flow is projected at around $250 million for the full year. After a seasonally weak first quarter, Xerox expects inflows of more than $400 million over the remaining months. New distribution partnerships and a 31% increase in production system installations are underpinning the revenue outlook.

Shareholders will get their say on the company’s direction at the annual general meeting in May 2026, where votes are scheduled on executive compensation and board composition.