*NEWS*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.

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July 27, 2006 at 11:56 AM