LEXMARK’s SHARES FALL 4%

[Anonymous]

Lexmark’s shares fall 4% on earnings,
But 2nd quarter of last year was better
Lexmark
International announced second-quarter earnings yesterday that were
markedly higher than Wall Street expected and included optimism about
its strategy of developing printers for high-growth market segments.
But the earnings continued to reflect the company’s struggle since last
year.Revenue for the quarter was $1.23 billion, down from $1.28 billion
in the same period a year ago.The company earned $76.7 million in the
quarter, compared with $79.9 million in the same quarter in 2005.The
drop in earnings and revenue appeared to dampen the enthusiasm of
investors, as shares of Lexmark (LXK: NYSE) fell $2.26 to close at
$50.52.Earnings per share this quarter were 74 cents but would have
been $1.07 a share had it not been for a restructuring charge of 35
cents a share and a tax benefit of 2 cents a share. The earnings were
far higher than the 70 cents to 80 cents a share, excluding one-time
charges, that the company forecast in April.Earnings per share in the
second quarter last year, excluding a one-time charge, were $1.06.The
higher earnings per share occurred because Lexmark has substantially
reduced its number of shares outstanding in the last year, from about
125 million to 104 million.The company said it repurchased $300 million
of its stock, or about 5.7 million shares, in this past quarter.The
company attributed the stronger earnings to improved gross margins,
primarily because Lexmark sold fewer inkjet printers, which typically
have lower margins than laser printers.Chief Executive Officer Paul
Curlander told analysts yesterday that the company is continuing to
spend more on research and development, up more than $10 million in the
past quarter compared with a year earlier, to aid its strategy of
developing printers for high-growth market segments.Chief Financial
Officer John Gamble said Lexmark’s efforts so far have been
successful.”We’ve seen some good progress for those products, as well
as good reception for those products from the press and the market. We
feel good there,” he said.

Revenue for the company’s business
segment, focused on laser printers, was $713.2 million, up 1 percent
compared with the same period in 2005. Revenue for the consumer
segment, focused on inkjets, was down 10 percent to $515.8 million.
The
company said the number of inkjet units sold declined 25 percent,
reflecting drops in the sales of Lexmark printers packaged under other
brand names as well as Lexmark-branded single-function inkjets. It said
sales of all-in-one printers, which include scanning, copying and
sometimes fax functions, grew.Revenue from sales of supplies was down 1
percent from a year ago, the company said. Printer hardware revenue, as
a whole, was down 7 percent.The declines come as the company walks away
from a portion of its inkjet sales, primarily bundles in which the
company’s printers were either given away or sold at little cost to
consumers who did not buy enough ink and supplies over the life of the
printers to meet profit expectations.Lexmark began experiencing
problems in the latter half of last year after its competitors slashed
prices on printing hardware and the company was slow to respond. During
the same time, the growth of Lexmark’s sales of supplies, such as ink
and toner, began to slow.In January, the company announced a
restructuring plan that would eliminate or transfer 1,350 jobs,
including as many as 200 in Lexington, to countries where wages are
lower. The majority of the restructuring in Lexington has already taken
place, said spokesman Tim Fitzpatrick.The restructuring was reflected
in yesterday’s earnings announcement — the 35 cents-a-share charge —
and will also be reflected in third-quarter earnings.Looking forward,
the company said it expects third-quarter earnings per share to be 65
cents to 75 cents, excluding a charge of 16 cents a share related to
the restructuring.Included in the forecast is a reduction of 5 cents a
share because of an inkjet printer component shortage. The company said
the issue “is now largely resolved” but will affect earnings,
“primarily for incremental air freight to expedite product delivery.”
The company expects revenue to be flat to down in the low-single-digit range compared with a year ago.

[Author]

July 27, 2006 at 11:57 AM