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 user 2008-01-28 at 2:18:00 pm Views: 43
  • #18976

    Sluggish Lexmark looks to rebound
    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.

    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.”