*NEWS*LEXMARK: INKJET SALES = 5% DROP

Toner News Mobile Forums Latest Industry News *NEWS*LEXMARK: INKJET SALES = 5% DROP

Date: Thursday November 2, 2006 02:37:00 pm
Viewing 1 post (of 1 total)
  • Author
    Posts

  • Anonymous
    Inactive

    Earnings forecast drops Lexmark shares 5%
    Move to cut inkjet sales has impact
    Shares
    of Lexmark International Inc. tumbled nearly 5 percent yesterday after
    the Lexington, Ky., printer maker said it would not earn as much as
    analysts had predicted during the final three months of the
    year.Lexmark announced stronger-than-expected third-quarter earnings
    yesterday, reporting net income of $85.6 million.But the earnings
    surprise was dampened by predictions that it would earn 80 to 90 cents
    per share during its fourth quarter, excluding restructuring costs.

    Analysts polled by Thomson First Call had been predicting 91 cents per share.
    Lexmark
    shares fell $3.09 to close at $59.94.Paul Curlander, Lexmark’s chairman
    and chief executive, told analysts on a conference call that the
    lower-than-expected earnings forecast reflects the company’s decision
    to stop selling many of its least expensive inkjet printers, focusing
    instead on laser printers and inkjets that can print, copy, scan and
    fax documents.That plan called for cutting inkjet printer sales by
    about 20 percent.”During the first half of the year, we lost some shelf
    space” at office supply stores and electronics outlets, Curlander said.
    “Since then, we’ve been improving.”Analysts had called the plan to dump
    some inkjet sales risky because of Lexmark’s business model. The
    company has traditionally lost money on printers and made its profits
    on replacement ink and toner supplies. Cutting out low-end sales risked
    losing ink buyers.On the other hand, the multifunction devices that the
    company is now spending more time developing and promoting use more ink
    than single-function printers, Curlander and others have argued.Lexmark
    Chief Financial Officer John Gamble said in an interview that the
    company is continuing to eliminate sales of unprofitable low-end
    printers, expand sales of higher-value inkjet and laser printers and
    expand its business and consulting services.”Those segments that we’ve
    been talking about all year, we think we had very good success in
    those,” Gamble said. “For the rest of this year and into next year,
    you’re going to see us continue with that strategy.”Goldman Sachs
    analyst Laura Conigliaro said the third-quarter figures show that
    Lexmark has successfully dumped much of its bundled business — deals
    under which buyers got a free printer with the purchase of a
    computer.In a research note, she said such deals, especially with Dell,
    lowered the average sales price of a Lexmark printer and hurt the
    company’s basic business model.”Lexmark’s performance through year-end
    should be strong, and Lexmark’s targets seem set for another big beat,”
    Conigliaro wrote in her report, referring to the lower-than-expected
    fourth-quarter earnings guidance.

         
    Lexmark working hard to right itself

    Stock recovers, but challenges remain
    A
    year ago, Lexmark International began a protracted slump when
    executives cut their third-quarter earnings forecast, sending shares of
    the company into a tailspin that saw the stock lose almost 30 percent
    of its value in a single day.Now, as the company prepares to announce
    its third-quarter earnings on Tuesday, industry observers say the
    Lexington-based printer maker continues to face a series of challenges
    in its quest to turn the business around.The company has acted quickly
    in the past year, cutting or transferring hundreds of jobs, closing an
    inkjet cartridge production plant and focusing its printer
    introductions on high-growth product segments.The company also
    significantly reduced the number of inkjet printers it sells in
    bundles, printers that executives have said were not producing enough
    profit.Investors have rewarded the company’s strategy. Before last
    year’s slashed forecast, the company’s stock traded in the $60 range,
    but dropped almost $20 on Oct. 4, 2005. It’s recovered throughout the
    year and is now trading higher than it was before the fall.But the
    share price has approached or exceeded the target set by some analysts
    who, along with industry observers, caution that the company still has
    a gradual recovery ahead.”It’s hard to turn the battleship around
    quickly,” said Larry Jamieson, director of the Hard Copy Industry
    Advisory Service at Lyra Research.

    Inkjet issues
    Among
    Lexmark’s biggest changes in the past year was its decision to withdraw
    from about 20 percent of its inkjet sales, a group that includes a
    number of bundling agreements, where purchasers of a computer would
    receive a free or heavily discounted printer.The company called some of
    those agreements bad deals, as consumers fail to buy enough ink
    cartridges and supplies over the products’ lifetimes to offset low
    profit margins on the initial piece of hardware.The move has helped
    Lexmark’s gross margin in recent quarters because the inkjets in that
    group typically had lower margins on hardware sales than inkjet
    all-in-ones or laser printers.The tradeoff, said analyst Shannon Cross,
    is a smaller installed base of customers.That installed base is relied
    upon in the long term for sales of supplies like ink and toner. With
    fewer owners of its inkjet printers Ð albeit owners who didn’t print an
    overwhelming amount Ð the company could face earnings pressures at a
    time when it needs to be “more aggressive in terms of their investment
    in the business,” said Cross, managing director at Cross
    Research.Lexmark is in a quiet period before the announcement and
    declined to comment for this story.Part of the company’s ongoing
    strategy is to develop more printers for high-growth product
    segments.On the inkjet side, those segments are 3-in-1 and 4-in-1
    products, typically referred to as all-in-one printers that include
    copying, scanning and sometimes faxing functions.For lasers, the
    company has focused on color lasers, laser all-in-ones and low-end
    monochrome laser printers.In the past year, the company introduced a
    spate of products in the categories, and continued to invest more money
    into research and development.But the research and development budgets
    pale in comparison to industry behemoth Hewlett-Packard.”The giant in
    the industry does about as nice a job as anybody in touching all the
    bases,” Jamieson said. “It’s almost like how can the other guys do
    about the same thing on a more limited budget.”

    Advertising
    Building
    up brand awareness has been another goal for the company in the past
    year. It recently launched an advertising campaign that touted how its
    printers go to work for some of the world’s largest businesses.Jamieson
    said the company should also consider using its marketing to point out
    more of the features of Lexmark printers.”They have some really good
    feature-rich products,” he said, noting the company’s progress in
    reducing the time it takes for a printer to start printing and its
    inclusion of duplexing features on more models. Duplexing allows
    printing on both sides of a page.”You don’t have to carry as many
    papers in your briefcase or you have fewer filing cabinets. The benefit
    is you’re using less space in your office,” he said.

    Going forward
    The
    company has said it expects third-quarter earnings per share to be 65
    cents to 75 cents.Analysts surveyed by Thomson Financial expect 79
    cents a share.Lexmark’s forecast amount excludes a charge of 16 cents a
    share related to a restructuring announced in January that included the
    closing of an inkjet cartridge manufacturing plant in Scotland.As part
    of the plan, the company is eliminating or transferring 1,350 jobs,
    including up to 200 in Lexington, to countries where wages are
    lower.Looking forward, Jamieson said he expects the next year may
    “still be a tough one to get rolling” for Lexington’s largest private
    employer. “It’s a tough battle.”

Viewing 1 post (of 1 total)
  • You must be logged in to reply to this topic.