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Lexmark slashes profit view on weak ink sales
Jul 2007 NEW YORK – Computer printer maker Lexmark International Inc. slashed its second-quarter earnings outlook on Monday, citing disappointing revenue from inkjet printers and cartridges, and its shares fell as much as 12 percent.
The warning is another disappointment from Lexmark, whose stock has tumbled since it released weak quarterly results in April.The news also came on the same day as a profit warning from recording disc and tape maker Imation Corp. , which forecast lower-than-expected second-quarter revenue and said it would cut its full-year outlook on softer demand and pricing pressure.Lexmark, which competes with Hewlett-Packard and counts Dell Inc. as one of its biggest customers, said it expected second-quarter earnings of 64 cents to 69 cents per share. The midpoint of that range is about 24 percent lower than that of the previous outlook of 82 cents to 92 cents.Excluding restructuring benefits, Lexmark said it saw earnings of 62 cents to 67 cents a share for the quarter. That was far short of the average Wall Street forecast of 86 cents, according to Reuters Estimates.Both earnings forecasts include an expected tax benefit of about 5 cents a share, Lexmark said in a statement.The warning comes as Lexmark is in the midst of a plan to reduce sales of unprofitable inkjet printers and invest in printers with more competitive features, such as wireless connections. It is also boosting spending on “demand generation” activities such as advertising and promotion.Cross Research analyst Shannon Cross said that shift was partly to blame for the warning.”The results are consistent with our belief that Lexmark’s strategic decision to walk away from ‘unprofitable’ low-end inkjet units would ultimately impact its supplies revenue,” Cross said in a note to clients. “In addition, we believe Lexmark’s consumer business is being impacted by a mix shift to lower (priced) products.Lexmark pegged the earnings shortfall to weak sales of inkjet supplies, including a shift to lower-priced “moderate use” cartridges, and lower per-unit revenue from hardware, driven by aggressive pricing and promotion and larger-than-expected product costs.The company added that the same pressures would affect its third-quarter results. It forecast earnings at around break-even to 10 cents a share, while analysts on average had expected profit of 81 cents.”Ultimately, to improve inkjet supplies sales we need to drive more sales of inkjet units,” Chief Executive Paul Curlander said on a conference call with analysts. “We are in a difficult situation.”While unit growth is good, he added, “it’s costing us more to drive it.”
LExmark said it expected second-quarter revenue to decline about 2 percent from a year earlier.According to Reuters Estimates, analysts on an average were expecting revenue of $1.21 billion, which would be a decline of 1.6 percent.Shares of Lexmark were down $3, or 6.1 percent, at $46.40 in morning New York Stock Exchange trade after sinking to $43.50, their lowest level in 20 months.
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