A class action lawsuit was filed against Xerox Holdings Corp. (XRX) by Levi & Korsinsky on November 19, 2024. The plaintiffs (shareholders) alleged that they bought XRX stock at artificially inflated prices between January 25, 2024 and October 28, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought Xerox stock during that period can click here to learn about joining the lawsuit.
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Xerox Holdings offers printing and digital document products as well as workplace technology solutions to enterprises.
The company’s claim about its reorganization efforts and the expected benefits are at the heart of the current complaint.
Xerox’s Misleading Claims
According to the lawsuit, Xerox and two of its senior officers (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about changes affecting the company’s salesforce and their effects on productivity and sales of older products from SEC filings and related material.
For instance, during the Class Period, the CEO noted that the company was undergoing structural changes in the organization and business, which positively impacted its adjusted operating margins by 170 basis points. Furthermore, in a press release dated February 1, 2024, the company mentioned that a line of its new products will be available in all regions by the end of March 2024.
Finally, in an annual report dated February 23, 2024, Xerox stated that its reorganization efforts strengthened the core business and are expected to boost its annual net adjusted operating income by $300 million above 2023 levels through 2026. One-third of these benefits were expected to be reported in 2024, backed by the reorganization efforts that started in January.
However, subsequent events (discussed below) reveal that Xerox wilfully misled investors about the revenue and profit expectations from its reorganization efforts.
Plaintiffs’ Arguments
The plaintiffs maintain that the Defendants deceived investors by lying and withholding critical information about the company’s business practices and prospects during the Class Period. Importantly, the Defendants are accused of misleading investors about its financial prospects.
The information became clear through a series of events that took place on April 23, 2024 and October 29, 2024. In April, Xerox released its Q1 FY24 results, wherein revenue fell 12.4% year-over-year to $1.5 billion and equipment sales declined 25.8%. Also, the company reported a net loss of $113 million, down from a net profit of $71 million recorded earlier.
The company attributed the weak performance to the earlier effects of “geographic simplification.” Moreover, the company said that the “Reinvention” plan had some disruptive effects on its sales operations initially, but it expressed confidence in seeing the positive impact on the equipment orders.
Thereafter, in the Q3 FY24 results, revenue again fell by 7.5% year-over-year. The company slipped to a net loss of $1.21 billion from a net profit of $0.49 million reported in the earlier year. The company attributed the poor performance to “lower-than-expected improvements in sales force productivity” and a delay in the launch of two new products. Following the news, XRX shares plunged by 17.4%.
To conclude, the defendants allegedly misled investors about the expected financial benefits from the company’s restructuring initiatives. In the past year, XRX stock has declined 37.2%, causing significant losses for shareholders.
