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 user 2007-02-01 at 9:57:00 am Views: 62
  • #17208

    LEXMARK Forecast scares off investors
    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

    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.