*NEWS*LEXMARK SCARES OFF INVESTORS

[Anonymous]

LEXMARK Forecast scares off investors
Lexmark
International announced fourth-quarter earnings yesterday that exceeded
Wall Street’s expectations. But muted forecasts for the first quarter
of 2007 led investors to sell off the stock, dropping its price more
than 5 percent over the day.The turbulent day for the stock price
paralleled a rather turbulent year for Lexmark, as it has sought to
restructure its business after entering a slump in the latter half of
2005.”I believe we made good progress last year,” Lexmark CEO Paul
Curlander told analysts yesterday morning during a conference
call.Curlander emphasized the company’s laser printer business, which
saw unit sales increase 15 percent in the fourth quarter of 2006 and
included strong performance in key growth segments like color lasers
and laser multi-function printers. The laser segment also drove growth
of supplies such as ink and toner to a 4 percent increase
year-over-year in the fourth quarter.But Curlander warned that the
laser supplies growth was more than Lexmark internally predicted and
would probably not be repeated in the first quarter of 2007.He went on
to forecast that Lexmark’s supplies revenue, including both laser and
inkjet, would decline rather than grow in the first quarter of 2007,
compared to a year earlier.It was a forecast that prompted multiple
questions from analysts, and was probably the engineer behind the
falling stock price, said Tom Carpenter, a vice president and senior
equity analyst at Hilliard Lyons in Louisville.”If supplies are down
like their forecast, that could be an issue on their margins and
earnings throughout the year,” said Carpenter, whose firm or its
affiliates beneficially own at least 1 percent of Lexmark’s
stock.Lexmark executives said the forecast for declining supplies
revenue stems from the company’s inkjet business, which has recovered
more slowly than its laser business.in the fourth quarter, the inkjet
segment’s revenue was down 11 percent year-over-year. For the year, its
revenues were down 8 percent.By contrast, Lexmark’s laser printer
segment saw its revenue increase 11 percent in the fourth-quarter
compared to a year ago. For 2006, its revenue was up 3 percent.The
weakness in the inkjet segment comes as the company walks away from a
portion of its inkjet sales, primarily bundles in which its 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 Chief Financial Officer John Gamble Jr.
said the company’s hope is that by eliminating the printers whose users
don’t print enough and focusing on selling more all-in-ones, which
typically print more, the inkjet business will thrive.Gamble said the
company did see an increase in the sale of all-in-ones, which generally
have scanning, copying and faxing functions, in the fourth quarter.The
company does not forecast past the first quarter, so executives
declined to discuss how long the exit from bundles could affect
supplies revenue.Carpenter said he expects the move to have run its
course by 2008.The withdrawal was part of the reason yesterday, though,
for Lexmark’s forecast of declining supplies revenue.The other
component is printers that Lexmark manufactures for other firms, which
then sell them under their own brands. That OEM business, as it’s
called, has been weak in recent quarters.But Carpenter noted that the
company’s supplies revenue could be higher than it
forecast.”Historically, Lexmark has always been very conservative in
their guidance,” he said.He also noted that forecasting usage patterns
can be difficult and Lexmark could wind up seeing more strength in
laser supplies than they expect, which could offset inkjet weakness as
it did in the fourth quarter.Since the company has been targeting
product segments that tend to use more ink and toner, “maybe the usage
patterns are different here,” Carpenter said.In the laser segment, the
company has been focusing on selling more color laser printers, laser
multi-function printers and low-end monolasers.Executives emphasized
the newest lines have won a host of critical acclaim in 2006.”The
reason we’re spending the R&D dollars and the development dollars
is to do just that,” Gamble said. “It’s to drive the product quality
and the print quality and the competitiveness of the
products.”Curlander noted, however, that the company is still not where
it wants to be.”We need to continue to invest and to improve in order
to drive our long-term growth,” he told analysts.And that long-term
growth depends on selling products that generate solid supplies sales,
Carpenter said.”The business model depends more on supplies and the
profits that they bring, and people are concerned in ’07 that if
supplies growth does not pick up: Are they going to be able to grow
their earnings year-over-year?” he said. “Wall Street rewards companies
that grow their earnings year-over-year. Companies that don’t grow
their earnings tend to get penalized.”

Lexmark 4Q profit up 9 percent
Inkjet
and laser computer printer maker Lexmark International Inc. said
Tuesday its fourth-quarter profit grew 9 percent as lower costs helped
offset flat sales.Net income rose to $89.9 million, or 91 cents per
share, from $82.3 million, or 71 cents per share, a year ago. Excluding
restructuring related items, earnings per share would have totaled
$1.05 in the latest period.Fourth-quarter revenue was $1.37 billion,
about flat with last year.On average, analysts surveyed by Thomson
Financial were looking for profit of 95 cents per share on sales of
$1.38 billion.”Overall, this was a good quarter for Lexmark and we
believe we are on course with our strategy,” said Chairman and Chief
Executive Paul J. Curlander. “We saw strong branded unit growth in the
quarter in our targeted growth segments of low-end monochrome lasers,
color lasers, laser all-in-ones, and inkjet all-in-ones.”The company
said adjusted gross profit margin totaled 31.1 percent, up from 28.3
percent in the same period last year, driven primarily by a change in
mix between hardware and supplies.

[Author]

February 1, 2007 at 9:57 AM