LEXMARK Q1 2011 ,SLAMMED AS PROFIT AND FORCAST FALL SHORT

[Anonymous]

LEXMARK Q1 2011 ,SLAMMED AS PROFIT AND FORCAST FALL SHORT
Lexmark International’s stock dropped more than 15 percent by noon Tuesday, after its first-quarter earnings failed to meet revenue and profit projections.The Lexington-based printer maker’s performance was linked to a number of factors, including an unexpected series of high costs related to distribution of its products.Revenue dipped 1 percent year over year, reversing expectations by Lexmark and analysts of a 1 percent increase. Analysts also expected profits of $1.24 a share, excluding one-time charges, while Lexmark delivered $1.14 a share. That was below its own expectations of $1.18 to $1.28 a share.The company revised downward its yearly earnings estimates, forecasting that revenue will be down by a low single-digit percentage. It previously forecast a low single-digit percentage increase in revenue.

The company said that the unexpected distribution costs were the largest drag on earnings during the quarter and that they were due to a consolidation occurring in how products are shipped from manufacturing locations to customers."Clearly, we had issues in the transition and need to resolve them," Chief Financial Officer John Gamble Jr. told analysts. He said the company does not expect to have the issues resolved fully until the second half of the year.

CEO Paul Rooke said the company also was hurt by aggressive pricing in some laser- and inkjet-printer segments and noted that the company opted in some cases not to lower its prices to match.Its inkjet operations were also stung with a 41 percent decline in hardware revenue year over year because the company has stopped selling some low-end printers through mass distributors.

Rooke said the earnings masked good results for its strategic goals. For instance, its high-end laser multifunction printers grew more than 40 percent year over year. Its offerings in managed print services, in which it manages printing for organizations, grew more than 25 percent year over year. Sales of color laser printers also saw double-digit percentage growth, he said."These are very encouraging numbers because the growth means deeper penetration into customers with high page generation," Rooke said.

The company separated its ink and toner sales into two categories — legacy and core — to differentiate its strategic goals from businesses it is de-emphasizing. The core segment saw growth of 13 percent year over year, Lexmark noted, while legacy ink and toner sales fell 30 percent."These dynamics are happening underneath the surface," Rooke said.Analyst Shannon Cross of Cross Research said the earnings "reflect a lot of the concerns we have … in terms of Lexmark’s competitive positioning and declining installed base.""They need to invest aggressively and bolster sales and marketing and research and development, and start growing revenue," she said. "That’s going to pressure margins."

    By the numbers

    REVENUE

    1Q11: $1.034 billion

    1Q10: $1.043 billion

    EARNINGS

    1Q11: $83.3 million

    1Q10: $95.3 million

    EARNINGS PER SHARE
    1Q11: $1.04
($1.14 excluding 2 cents a share for restructuring charges and 8 cents a share for acquisition-related charges)
    1Q10: $1.20 ($1.35 excluding 15 cents a share for restructuring charges)

    Hardware Revenue
    Laser: Hardware revenue fell 2 percent year over year. The number of printers sold fell 11 percent, though average unit revenue was up 10 percent.

    Inkjet: Hardware revenue fell 41 percent year over year. The number of printers sold dropped 39 percent, and average unit revenue was down 3 percent.

    Looking forward
    Lexmark expects second-quarter revenue to be down by a low single-digit percentage year over year. The company forecast earnings per share in the range of 89 cents to 99 cents. Excluding one-time charges, earnings per share are expected to be in the range of $1 to $1.10.

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April 27, 2011 at 8:31 AM