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Printer sales boost Lexmark profits, stock jumps
UPDATE – Printer sales boost Lexmark profits, stock jumps
Monday October 20, 4:37 pm ET NEW YORK, Oct 20 – Printer maker Lexmark International Inc. on Monday Said third-quarter earnings rose and forecast profit in the current quarter would surpass Wall Street forecasts, sending its shares up 10 percent.Lexmark (NYSE: color=#0000ff LXK – color=#0000ffNews), No. 2 in the U.S. printer market to Hewlett-Packard Co. (NYSE: color=#0000ff HPQ – color=#0000ffNews), said strong back-to-school demand for printers and solid sales of replacement ink cartridges boosted third-quarter results.
“The near-term numbers were strong and it is a testament to the razor and razor blade model,” said Cross Research analyst Shannon Cross, referring to the practice of selling hardware inexpensively and drawing profits from sales of replacement parts.
Lexmark, based in Lexington, Kentucky, posted third-quarter profit of $104.1 million, or 79 cents a share, up 16 percent from $89.8 million, or 70 cents a share, a year earlier.
Revenue rose 11 percent, to $1.16 billion from $1.04 billion.
Analysts had forecast a profit of 70 cents a share on revenue of $1.11 billion, according to Reuters Research, a unit of Reuters Group Plc.
Lexmark said revenue from sales of laser and inkjet printers climbed 13 percent, to $641 million from $568 million a year earlier and represented 55 percent of total revenue in the quarter.
But total gross profit margin slipped to 32.1 percent from 32.5 percent. Lexmark earns a bigger profit margin from sales of replacement ink and toner products than from sales of printers.
In an interview with Reuters, Lexmark Chief Executive Paul Curlander said the company depends on hardware sales to fuel demand for supplies.
“During this recessionary period the last couple of years, hardware sales have been impacted,” he said. “We got great hardware growth this quarter and we feel well positioned for the fourth quarter.”
STRONG BACK-TO-SCHOOL SALES
On a conference call with analysts, Curlander said corporate demand for laser printers was strong and consumer demand was encouraging, particularly in the July and August back-to-school shopping period.
Analyst Tom Carpenter at JJB Hilliard WL Lyons said Lexmark needs to continue to drive sales of laser printers, which reap a higher profit margin than inkjets. In fact, most printer makers lose money on each inkjet printer they sell.
“Most of the growth this quarter was from inkjet, which is consumer,” the analyst said. “We’d like to see more balance in the fourth quarter, with some companies starting to spend and laser (sales) picking up.”
Separately on Monday, Lexmark introduced several new office printers with prices ranging from about $5,000 to $11,500.
The company said it expects pricing in the printer market to remain competitive, but it forecast fourth-quarter profit of 85 cents to 95 cents per share on revenue growth in the mid- to high-single digits.
Analysts’ average fourth-quarter forecast is 82 cents a share, with estimates ranging from 76 cents to 92 cents.
“Solid recent U.S. same-store sales numbers, booming digital camera sales, and the potential for a pick-up in corporate IT (information technology) spending down the road leave us encouraged with the Lexmark outlook,” said Smith Barney analyst Craig Ellis in a note to clients.
Shares of Lexmark closed up $6.75 to $74.00 and were among the biggest gainers on the New York Stock Exchange ( color=#0000ff News – color=#0000ffWebsites) . The stock is up more than 20 percent since late July, when the company warned that third-quarter earnings would fall short of analysts’ estimates.
Shares of Hewlett-Packard also advanced, rising 52 cents to $21.47 on the NYSE. Analysts suggested that Lexmark’s good fortune with printer and supplies sales may bode well for HP
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