LEXMARK CASHING IN ON TONER SALES

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LEXMARK CASHING IN ON TONER SALES

 user 2004-04-20 at 11:11:00 am Views: 142
  • #5284

    <DIV><SPAN class=t><FONT color=blue size=4>Lexmark first-quarter profit rises 28 percent</FONT></SPAN></DIV>
    <DIV><SPAN class=t></SPAN><BR><FONT color=blue size=3>NEW YORK, April 19 (Reuters) – Lexmark International Inc., the No. 2 U.S. printer maker, on Monday said its first-quarter profit rose 28 percent and beat expectations, powered by strength in sales of replacement ink and toner. </FONT></DIV>
    <DIV class=ar>
    <P><FONT color=blue size=3>Despite the gains and a rosy forecast for second-quarter profit and revenue growth, analysts said the tone on the conference call of Lexmark’s chief executive was more cautious about competition and pricing levels than in recent quarters. </FONT>
    <P><FONT color=blue size=3>”They expect it to be a competitive environment, especially in the inkjets, and they tend to be a conservative company,” FTN Midwest Research analyst William Fearnley said. “The printer business is still good, but more people are fighting after the profit pool in ink.” </FONT>
    <P><FONT color=blue size=3>”It was a solid quarter… but it was a fairly cautious call for a company that beat expectations,” added Cross Research analyst Shannon Cross, who said the results were boosted by sales to Dell Inc.(NasdaqNM:</FONT><a target=”_blank” href= “http://finance.yahoo.com/q?s=dell”&gt; DELL</A><FONT color=blue size=3> – </FONT><a target=”_blank” href= “http://finance.yahoo.com/q/h?s=dell”&gt; News</A><FONT color=blue size=3>), the No. 1 computer maker which sells Dell-branded printers manufactured by Lexmark. </FONT>
    <P><FONT color=blue size=3>Shares of Lexington, Kentucky-based Lexmark, which ranks behind Hewlett-Packard Co. (NYSE:</FONT><a target=”_blank” href= “http://finance.yahoo.com/q?s=hpq”&gt; HPQ</A><FONT color=blue size=3> – </FONT><a target=”_blank” href= “http://finance.yahoo.com/q/h?s=hpq”&gt; News</A><FONT color=blue size=3>) in the printer market, ended higher on the New York Stock Exchange (</FONT><a target=”_blank” href= “http://us.rd.yahoo.com/finance/news/keywords/news/SIG=12g8261pe/*http://search.news.yahoo.com/search/news?p=%22New%20York%20Stock%20Exchange%22″&gt; News</A><FONT color=blue size=3> – </FONT><a target=”_blank” href= “http://us.rd.yahoo.com/finance/news/keywords/websites/SIG=12656uu0a/*http://search.yahoo.com/search?p=%22New%20York%20Stock%20Exchange%22″&gt; Websites</A><FONT color=blue size=3>) after falling in early trading. </FONT>
    <P><FONT color=blue size=3>Lexmark said its net income rose to $121.0 million, or 91 cents a share, from $94.6 million, or 73 cents, a year earlier. Revenue rose to $1.26 billion from $1.11 billion. </FONT>
    <P><FONT color=blue size=3>Analysts were expecting a profit of 88 cents a share, according to Reuters Research, a unit of Reuters Group Plc. </FONT>
    <P><FONT color=blue size=3>Lexmark Chief Executive Paul Curlander said sales of supplies grew by 14 percent, benefiting from a 17 percent rise in printers. But he said he remains cautious due to the potential for aggressive price competition, and noted that demand from consumers outstripped demand from businesses. </FONT>
    <P><FONT color=blue size=3>”Perhaps printers are a little further down the list of priorities than several other (technology) categories,” he told analysts on a conference call, although he noted that buyers in the government and retail sectors were still active. </FONT>
    <P><FONT color=blue size=3>Curlander said price competition in the printer market is aggressive but noted that Lexmark is working to push down its costs to maintain profit margins. </FONT>
    <P><FONT color=blue size=3>”We saw prices down 15 percent to 20 percent on lasers and 20 percent to 25 percent on inkjets,” he told Reuters in an interview. “Most companies if you dropped prices 20 percent they would go negative in profitability. The ideal is to at least match the price declines with cost declines.” </FONT>
    <P><FONT color=blue size=3>Lexmark said its gross profit margin rose, although it was somewhat offset by higher sales of low-margin printers. Manufacturers often sell printers at no profit or a loss in hopes of reaping recurring sales of more profitable supplies of ink and toner. </FONT>
    <P><FONT color=blue size=3>Lexmark forecast a second-quarter profit of 88 cents to 98 cents a share. up from 77 cents last year, on a revenue growth rate in the high-single to low-double digits. Analysts are expecting a profit in the second quarter of 90 cents a share, with a range of 85 cents to 95 cents, according to Reuters Research. </FONT>
    <P><FONT color=blue size=3>Shares of Lexmark ended up $2.31 cents to $96.16, not far from its 52-week high of $97.00, hit last week. The stock had not reached that level since May 2000. HP shares were off 1.3 percent, or 28 cents, to $21.72. </FONT></P>
    <P><FONT color=blue size=5>Lexmark Inks More Profits</FONT></P>
    <P><FONT color=blue size=3>I’ve been a computer geek for longer than I care to admit, and I remember when <B>Lexmark</B> <B>International</B> </FONT><A onclick=”openWindow(‘http://quote.fool.com/uberdata.asp?symbols=LXK&#8217;, ‘quotebox’, 640, 460); return false;” href= “http://quote.fool.com/uberdata.asp?symbols=LXK”&gt; NYSE: LXK</A><FONT color=blue size=3> was a wee sapling, growing amid oaks like Epson and industry leader <B>Hewlett-Packard</B> </FONT><A onclick=”openWindow(‘http://quote.fool.com/uberdata.asp?symbols=HPQ&#8217;, ‘quotebox’, 640, 460); return false;” href= “http://quote.fool.com/uberdata.asp?symbols=HPQ”&gt; NYSE: HPQ</A><FONT color=blue size=3>.</FONT></P>
    <P><FONT color=blue size=3>This morning’s </FONT><a target=”_blank” href= “http://quotes.fool.com/custom/fool/html-news.asp?guid=%7B868DF5E8-4098-48F6-8080-313BA626601E%7D&currticker=lxk&symbols=lxk&nx=&bx=”&gt; earnings release</A><FONT color=blue size=3> shows that the smaller firm continues to shoot upward, building on its strong roots in the printing business. Today’s results are much cheerier than the </FONT><a target=”_blank” href= “http://www.fool.com/News/mft/2004/mft04012612.htm”&gt; somber predictions</A><FONT color=blue size=3> that management made back in January.</FONT></P>
    <P><FONT color=blue size=3>For the first quarter, revenues jumped 13% to $1.3 billion and diluted earnings per share nearly doubled that increase, climbing 25% to $0.91. The earnings growth was driven by a 0.6% increase in gross margins and a decrease in operating expenses as a percentage of revenue.</FONT></P>
    <P><FONT color=blue size=3>In short, the firm still looks like a business with a license to print money, and it looks well-positioned to capitalize on </FONT><a target=”_blank” href= “http://www.fool.com/News/mft/2004/mft04041621.htm”&gt; increased demand</A><FONT size=3><FONT color=blue> for computers. While other firms such as <I><a target=”_blank” href= “http://investorplace.com/order/?pc=2PA393&r=d”>Motley Fool Stock Advisor</A></I> recommendation <B>Dell </B></FONT></FONT><A onclick=”openWindow(‘http://quote.fool.com/uberdata.asp?symbols=DELL&#8217;, ‘quotebox’, 640, 460); return false;” href= “http://quote.fool.com/uberdata.asp?symbols=DELL”&gt; Nasdaq: DELL</A><FONT color=blue size=3> and <B>Gateway</B> </FONT><A onclick=”openWindow(‘http://quote.fool.com/uberdata.asp?symbols=GTW&#8217;, ‘quotebox’, 640, 460); return false;” href= “http://quote.fool.com/uberdata.asp?symbols=GTW”&gt; NYSE: GTW</A><FONT color=blue size=3> are broadening their product portfolios to include devices well outside their traditional areas of expertise, Lexmark has resisted the </FONT><a target=”_blank” href= “http://www.fool.com/news/commentary/2004/commentary040407bm.htm”&gt; siren song</A><FONT color=blue size=3> of consumer electronics diversification to stay on target with printers, multi-function printers, and supplies — where the real money is made.</FONT></P>
    <P><FONT color=blue size=3>Valuing the firm is the tough task. At around $93 per share, the stock isn’t far off its recent 52-week high, but there is little reason to be spooked by the P/E ratio of 28, even though analysts predict only 12% earnings growth for the year. Lexmark has a history of good-looking free cash flow. Last year, $654 million poured in, so today, the enterprise value is 17.5 times that trailing free cash flow. That’s a discount to the rest of the market, and suggests that the company has more climbing to do before it tops out.</FONT></P></DIV>