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 user 2008-04-23 at 1:42:35 pm Views: 30
  • #19541
    Lexmark facing questions on lasers
    Division profit falls, expenses rise for now
    International’s laser printer business, which has increasingly propped
    up the company in recent years, came under closer scrutiny Tuesday as
    analysts asked about its climbing expenses.Their conversations with
    management came as Lexmark announced first-quarter earnings that
    exceeded expectations but continued to show a trend for laser: revenue
    is climbing but profit is falling.In the first quarter, revenue rose 1
    percent for the division, but income fell 7 percent. And the quarter
    also saw another trend continue — shipments of laser printers fell,
    just as they have in all but one of the last five quarters.

    says it’s shipping the products that matter — higher-end printers
    whose owners print more pages and use more toner.Lexmark’s real profit
    lies in toner sales. It noted that sales of color laser products were
    up in the double-digit percentage range in the first quarter.”They’re
    getting into the growth portion of the market,” acknowledged Larry
    Jamieson of industry tracker Lyra Research. “But … at some point,
    revenue has to kick in a bit better.”

    While Lexmark’s inkjet division has struggled in recent years, laser has chugged on.
    segment saw its revenue increase 3 percent year-over-year in 2006, and
    5 percent year-over-year in 2007.But when excluding certain
    restructuring charges, operating income, or the division’s profit, fell
    5 percent and 2 percent, respectively, in those years. And the first
    quarter’s operating income for laser was down 7 percent.Executives said
    the division’s expenses have increased because of a strong investment
    in research and development, as well as spending for a larger sales
    force to help sell a broad portfolio of products.”We feel like the
    business, in terms of the product and the offerings that we have, is
    very well-positioned and the best positioned it’s been in a long time,”
    said Chief Financial Officer John Gamble Jr.But the question now is:
    How long does it take until the investment pays off with revenue growth
    that outpaces expense growth?”Over the next year or two, they’re trying
    to achieve critical mass,” said Tom Carpenter, vice president and
    senior equity analyst at Hilliard Lyons in Louisville. “They’re still
    making good money in that business.”

    Gamble declined to discuss how soon Lexmark envisions such a critical mass being achieved.
    said the company’s odds of succeeding are greater in the laser division
    than in the struggling inkjet division, which saw inkjet shipments drop
    42 percent year-over-year in the quarter.”They have a higher brand
    image in (laser) than they do in inkjet,” he said.With inkjet’s
    well-publicized struggles, Jamieson said, it’s possible that could
    weigh on some laser buyers’ minds.”The difficulty is where they don’t
    know Lexmark, and particularly in some of the smaller businesses,”
    Jamieson said. “If all they know are Lexmark low-end inkjet printers,
    they might equate the Lexmark laser printers with the Lexmark inkjet
    printers, and that would have a definite negative effect.”

    1st quarter 2008: $1.18 billion.
    1st quarter ’07: $1.26 billion.
    1st quarter ’08: $101.7 million.
    1st quarter ’07: $92.4 million.
    Earnings per share
    1st quarter ’08: $1.07. Would have been $1.16, excluding 9 cents a share for restructuring.
    1st quarter ’07: 95 cents. Would have been 96 cents excluding 1 cent a share for restructuring.

    Behind the earnings
    2008 profit increased despite a revenue decline, as the company
    benefited from selling fewer inkjet printers. Those printers are
    typically sold at a loss, with ink cartridges later bringing the
    profits. The company’s laser printer division saw a 1 percent increase
    in revenue, though its operating income fell 7 percent year-over-year.

    Looking forward
    company said it expects second-quarter revenue to decline in the
    mid-single-digit percentage range year-over-year. It forecast
    second-quarter earnings per share to be 54 cents to 64 cents. Excluding
    restructuring charges, it expects earnings of 65 cents to 75 cents per