LXK, article from Kentucky, looking for a dead cat bounce on Monday here
<<Lower-than-expected growth sends Lexmark stock tumbling
By Jamie Butters
HERALD-LEADER BUSINESS WRITER
Lexmark reported disappointing earnings yesterday, and its stock lost almost one-fourth of its already-depressed value.
In March, the company was worth about $17 billion. By the end of trading yesterday it was valued at about $6.5 billion.
Lexmark is one of the most widely held stocks in Central Kentucky as well as the state's biggest company and Lexington's largest employer.
The company reported record highs in revenues and income as it has for 19 consecutive quarters but growth rates were lower than expected, and the company warned that the next quarter won't be much better.
Lexmark reported second-quarter net income of $84.1 million, or 62 cents per share, up from $74.5 million, or 55 cents a share, for the same period last year.
That translates to 13 percent growth in net income. Earnings per share, adjusted for rounding and buybacks, increased 14 percent. Lexmark's target is 20 percent growth, and it usually tops that level.
More important, Wall Street punished the stock for failing to meet analysts' expectations for the first time since it first sold shares publicly in 1995.
Slower-than-expected sales of high-end laser printers held back profits. Lexmark blames Y2K.
Many companies geared their computer hardware purchases to the end of 1999, when it was feared that older systems would mistake the year 2000 for 1900 and crash to a halt.
Lexmark was surprised by how long it has taken big companies to get back into the habit of buying hardware, Chairman and CEO Paul Curlander told analysts yesterday.
``We truly thought it would have strengthened earlier in the year,'' he said.
Shareholders wish it had.
Yesterday's selloff brought a litany of bad numbers:
Shares lost $14.25, or 22 percent, falling to $49.75. The stock had traded as high as $135.875 during the day on March 22, 2000.
It was the lowest closing price for Lexmark stock since March 24, 1999, adjusted for a 2-for-1 split last June.
As of yesterday's close, Lexmark's year-to-date return was a negative 45 percent.
Lexmark investors are suffering at least in the short term and nowhere more so than in Lexington.
Sally Bradford, president of the Galexy Investment Club, said it sold some Lexmark stock about six months ago, but it will keep what it still has.
``We better hold on to it,'' she joked, ``because we can't afford to sell it.''
Her husband retired from IBM shortly before Lexmark was spun off from the office-equipment giant, she said, and she has confidence in Lexmark.
``I think it's a good company and (the stock) will come back,'' she said. ``It might be a good time to buy.''
Analyst Pete Enderlin with Ryan Beck agrees.
He lowered his earnings per share expectations yesterday to $2.66 for 2000 and $3.20 for 2001. Those are on the high end of company executives' range of projections, but his guess is that management is being exceptionally cautious about earnings forecasts after today's experience.
To blame Y2K might sound like management is grasping at straws, Enderlin said, but it is consistent with the results at Xerox and printer-industry leader Hewlett-Packard.
Ben Reitzes, an analyst with PaineWebber in New York, sees it as a calendar problem but not one that is isolated to the year 2000.
Printers are good for three to five years, he said, and so many of them were sold from 1997 through 1999 that there is bound to be a down year or two.
``The printer market is proving to be more cyclical than we had thought,'' Reitzes said.
Company executives say the cycle is already turning in their favor, but the bottom line won't improve until the fourth quarter.
Chief Financial Officer Gary Morin said sales of corporate laser printers have already started improving, which will improve third-quarter revenue and operating income results.
But since second-quarter net income got a boost from tax-rate changes and a one-time gain, the company has even further to go than it seems at first blush.
Still, Morin said Lexmark has a good strategy to provide and will stay the course.
``We're just busily going back about our work.''>>
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