UPDATE - Lexmark warns on 3rd quarter profit, shares tumble
Monday July 21, 12:21 pm ET
By Franklin Paul
(Recasts lead, updates share price, adds analyst comment, byline)
NEW YORK, July 21 (Reuters) - Printer maker Lexmark International Inc. (NYSE:LXK - News) on Monday said its third-quarter profit would miss Wall Street estimates because of slowing demand from retailers for replacement ink cartridges, pushing its stock down 19 percent.
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The warning from Lexmark, which reported its second-quarter earnings rose, spooked investors in Hewlett-Packard (NYSE:HPQ - News), the No. 1 maker of printers, sending its shares down almost 4 percent.
"Retailers are either getting better at real-time inventory management or they are seeing that consumers aren't buying as quickly," said Shannon Cross of Cross Research. "(This) potentially has implications for HP...although not with the same magnitude of impact."
Lexmark also faces competition from office products retailers such as Staples Inc. (NasdaqNM:SPLS - News) and Office Depot Inc. (NYSE:ODP - News), which have increasingly promoted their private-label ink cartridges. The private-label products are priced as much as about 15 percent below those made by competitors such as Lexmark and Hewlett-Packard.
Lexington, Kentucky-based Lexmark posted second-quarter net income of $101.7 million or 77 cents a share, compared with $89.1 million, or 67 cents a share one year ago.
Wall Street analysts were expecting earnings on average of 78 cents a share, according to Reuters Research, a unit of Reuters Group Plc.
Revenues rose to $1.12 billion, on par with analyst expectations and up from $1.06 billion a year earlier. Sales of Laser and inkjet supplies, vital replacement parts for printer users, rose 11 percent to $630 million, but off from $642 million in the first quarter.
On a conference call, analysts voiced concerns over the sales of laser and inkjet supplies, which are higher margin products than printers. Most had anticipated a rise of about 1 percent to 2 percent in the second quarter from the first.
The company said results were affected by weaker market prices and because of a reduction in inventory at a few retailers, which buy products for resale to consumers.
Shares of Lexmark tumbled $13.80, or 19 percent to $59.70.05 in midday trade on the New York Stock Exchange (News - Websites), where it was the second-biggest percent losers. HP shares also slipped, falling 4 percent to $21.70.
Looking ahead, Lexmark said it expects printer sales to improve in the second half of the year, boosted by a new line of products. But overall margins are expected to be weaker because of the lower margins for hardware.
Lexmark said it remains cautious due to softness in corporate and consumer spending, and pegged third-quarter profit at 63 cents to 73 cents a share, with revenue growth at a rate in the low- to mid-single digits.
Analysts on average had forecast a profit of 81 cents. |
