What happened

Shares of Xerox Holdings (XRX -0.22%) rose 13.9% on Tuesday, following the Monday night release of its first-quarter earnings report.

Xerox is primarily known for its physical printers, but the company also has some other services-related products, such as workflow, personalization, and communications software. Still, its printing devices and ink sales dominate revenues. That's not a growth industry, which why the company trades at a very low valuation.

Yet that low valuation set the company up for a spike today, as cost controls enabled Xerox to flip from losses in the year-ago quarter to profits today. And its full-year cash flow guidance also provided room for optimism.

So what

In the first quarter, Xerox logged a 2.8% revenue gain, or growth of 5.5% in constant currency. Adjusted non-GAAP (generally accepted accounting principles) earnings per share flipped from a $0.12 loss a year ago to a gain of $0.49, which was impressive.

CEO Steve Bandrowczak said:

Despite a challenging macroeconomic climate, demand for our equipment and services remains resilient and is supported by service offerings that help our clients mitigate current macro headwinds like higher inflation, labor shortages, and tighter liquidity conditions. Further, the benefits of a more flexible cost base and ongoing operational efficiencies helped drive improvements in profitability in the first quarter.

Impressively, Xerox was able to improve gross margins by 250 basis points. On the conference call, management attributed this to a mix of improving supply chain and logistics costs, as well as price increases taken over the past year. The company also made progress in paying down its debt load, paying off over $450 million of its debt in the first quarter and leaving the company with about $3.27 billion left on its balance sheet.

For the full year, Xerox expects flat to slight declines in revenue, with adjusted operating margins between 5% and 5.5%. However, perhaps the most bullish point of guidance was for free cash flow, which management predicts will come in around $500 million in 2023.

Xerox's market cap is just $2.4 billion, so that makes the stock trade for less than 5 times cash flow. While Xerox's debt load brings the company's enterprise value to $5.7 billion, that is still just a 10 to 11 multiple on this year's cash flow guidance.

Now what

Xerox isn't the sexiest stock out there, as it's really in a no-growth business. However, printing is a fairly consolidated industry, and management seems to be succeeding in wringing lots of profitability out of the business. At this valuation, the stock can still work if management executes and the economy doesn't take a severe downturn.