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 user 2008-01-28 at 2:17:00 pm Views: 42
  • #18961

    Sluggish Lexmark looks to rebound
    When Lexmark International announces its fourth-quarter and annual earnings Tuesday, it might offer investors their first glimpse at early progress on the printer maker’s recently announced restructuring plan.It comes at a time of depressed investor confidence in the company.The company’s stock  is trading at a level just below its last sustained low in October 2000. New 52-week lows became commonplace this month, and, despite the low price, some analysts following the stock remain cautious.Goldman Sachs analyst Min Park continues to rate it as a sell, citing “increasing competition, challenging revenue growth and the lack of a clear roadmap for the company’s turnaround.”Her note to clients demonstrates that questions remain after the company’s October announcement of a restructuring that by the end of 2008 will dramatically reshape its struggling inkjet division.Since the beginning of 2007, Lexmark shares have lost more than 60 percent of their value. The losses have climbed at the same time the company has fewer shares outstanding than in years past.Around the time the inkjet division began running into trouble, the company launched its most aggressive share buyback plan in history. In 2005 and 2006, the company spent nearly $2 billion repurchasing stock, typically paying in the $50s or $60s per share.

    Lexmark billed it as a way to return money to investors. (The company doesn’t issue a dividend.)The company has since stopped as analysts note its domestic cash reserves have fallen to the point that it would have to repatriate income from overseas to fuel aggressive buybacks.And while the company might not be buying anymore, despite dramatically lower prices, neither are its executives. Though several of them received shares under the company’s stock incentive plans since October, most have not gone out and purchased otherwise.A notable exception is Jeri Isbell, vice president of human resources, who purchased more than 10,000 shares through her 401(k) plan in November.Generally speaking, a move by top management to buy shares suggests they think the stock is undervalued.”If management and the board believed in their turnaround plan, it would be nice to see them buy shares with their own money,” said Tom Carpenter, vice president and senior equity analyst at Hilliard Lyons in Louisville. “However, it’s becoming increasingly rare, unfortunately, where management of any company does this.”

    The inkjet plans
    The restructuring plan is the second since early 2006 aimed at turning around the inkjet division.The latest plan calls for Lexmark to close one of its two ink cartridge plants in Juarez, Mexico.And 1,650 positions worldwide, about 11 percent of its work force, will be eliminated or transferred to lower-wage countries. The moves, mostly centered on manufacturing and support functions, affect 200 jobs in Lexington.The company will pull out of 30 percent of its inkjet printer sales and focus on targeting customers and geographies that use more ink, the profit-driver of the printer industry.The inkjet division was unprofitable in the third quarter (July through September), posting a $16 million operating loss. Its revenue fell 13 percent year-over-year, with the number of printers sold falling 14 percent.The company previously said it expects fourth-quarter revenue to decline in the low- to mid-single digit percentage range year-over-year. It forecast fourth-quarter earnings per share to be 32 cents to 42 cents. Excluding restructuring charges, it expects earnings of 50 cents to 60 cents per share.

    Analysts surveyed by Thomson Financial expect 58 cents a share.Several analysts have said they expect the company’s laser business to continue its steady growth, helping to offset some of inkjet’s weakness.”Overall, I wouldn’t expect for them to have really great news,” said Larry Jamieson of industry tracker Lyra Research. “But that it wasn’t an exceptionally bad quarter wouldn’t be a bad thing.”He said the company’s inkjet moves, including its increased emphasis on wireless printers, may not show up in the numbers until the middle of the year.”I’d say management has put themselves on the line by insisting that they can make money on inkjet,” Carpenter said. “Inkjet’s largely been the driver for the precipitous decline in the stock price.”