Xerox to Lay Off 95 Orlando Employees, Brexit Risks Loom (revised)

Information technology services provider Xerox Corporation

recently revealed its plans to lay off 95 employees in its healthcare division in Orlando. Although the company did not divulge the reason behind the strategic decision, it refused to attribute the lay-offs to its split into two independent entities.

The affected employees are part of the Xerox State Healthcare LLC unit in Orlando. This Xerox subsidiary offers healthcare program administration services and administers Medicaid, state children's health insurance programs, long-term care programs, and pharmacy benefits management programs. It also offers care coordination and management services along with health information analysis and fraud and abuse protection services.

In a statement issued by the company, the affected employees were encouraged to seek possible employment opportunities in other business divisions. The statement read, "Unfortunately, due to a business decision of a single client, we are making the necessary yet difficult decision to reduce our workforce... We realize this affects individuals and every effort is being made to ensure that all employees are treated fairly."

Such unfortunate yet bold decisions seemed to be the call of the hour as the company aimed to improve its revenues and lower the operating costs.

Xerox has been grappling with slow demand in its printing business for years, while its attempts to leverage the business process outsourcing market also failed to lend growth momentum. The company also endured a number of slip-ups in its Medicare and Medicare information services for several government agencies across the U.S.

In 2015, the company conducted a review of structural options for its portfolio and capital allocation. On the basis of this review, it decided to split into two independent, publicly traded entities in the first quarter of 2016. The process is expected to be completed by the end of 2016. The separation will see Xerox segregating its hardware operations and its services business. While one would comprise the Document Technology and Document Outsourcing business, the other its Business Process Outsourcing

business. Both these entities would likely feature among the Fortune 500 companies and will be leaders in their respective markets.

With a strategic focus on various markets, Xerox expects to capitalize on the unique strengths of its Document Technology and BPO businesses and capture the value-creation opportunities, post split. As part of the restructuring, Xerox has decided to execute a three-year strategic transformation program to improve its productivity and reduce costs across the businesses.

Despite the prudent efforts, Xerox is expected to feel some impact of the Brexit fallout as 5% of its total revenue reportedly comes from the U.K. However, Xerox has no manufacturing facilities in the UK; the last remnants of RD&E were outsourced two years ago.

The revamped market dynamics from the Brexit referendum are expected to affect Xerox that has a significant trade relationship with the U.K. The company is likely to be stifled by the renegotiated deals and restrictions imposed on trade with other European Union members. Brexit could further result in higher tariff and non-tariff barriers to trade between the U.K. and the European Union, lowering productivity of the company.

Xerox currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry include ExamWorks Group, Inc.

, InnerWorkings Inc.

and Rentokil Initial plc (RTOKY), each carrying a Zacks Rank #2 (Buy).

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