Lexmark profit tumbles, shares near 5-year low
I put up charts comparing HPQ to LXM here
suite101.com
Author: Kirk
Discussion: HPQ (Was HWP) - Hewlett Packard Merged with Compaq Computer
Date: October 26, 2005 6:46 AM
Subject: Lexmark profit tumbles, shares near 5-year low
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Lexmark profit tumbles, shares near 5-year low
Tue Oct 25, 2005 03:08 PM ET
(Updates with latest stocks prices for Lexmark stock and adjusts valuation figures for Lexmark, rival Hewlett-Packard)
By Franklin Paul
NEW YORK, Oct 25 (Reuters) - Printer maker Lexmark International Inc. (LXK.N: Quote, Profile, Research) on Tuesday said quarterly profit fell by more than half as it suffered a dramatic slump in demand for its ink and toner, driving its stock price to a 5-year low.
Its stock, already down more than 50 percent this year, fell 6 percent after Lexmark also said its fourth-quarter profit would be significantly below Wall Street views.
Lexmark has recently suffered a slump in inkjet printer sales as chief rival Hewlett-Packard Co. (HPQ.N: Quote, Profile, Research) aggressively cut prices in an effort to gain market share. As Lexmark sells fewer printers, demand declines for ink and toner, which are more profitable.
Chief Executive Paul Curlander blamed the weakness on a dramatic slump in demand for supplies, which are far more profitable than printers, and a slowdown in purchases by office supply and electronics stores that sell Lexmark products.
The Lexington, Kentucky-based company posted third-quarter net income of $70.2 million, or 59 cents a share, down from $156.1 million, or $1.17 a share, a year earlier. The profit included costs of 5 cents a share from previously announced job cuts, offset by a tax benefit of 5 cents per share.
Revenue declined 4 percent to $1.22 billion.
The results exceeded analysts' lowered expectations.
Earlier this month, Lexmark warned that its earnings would fall far short of its previous forecast of around $1 per share, driving its stock lower.
On a conference call, one analyst characterized the results as "your worst quarter in history." Others worried that Lexmark's demand dilemma could pinch 2006 profits.
"Fourth-quarter guidance was weak (and) brings into question the company's earnings power in 2006," said Cross Research analyst Shannon Cross, who kept her rating on Lexmark shares at "sell."
"Industry pressures, risk to the Dell relationship and the need to invest internally will lead to disappointing earnings," she said.
SLUMP IN SALES OF SUPPLIES
Curlander declined to detail any specific flaw in Lexmark's strategy, saying a number of factors could be hurting sales of supplies, from lower printer sales to decreased use of printers by consumers.
Lexmark needs to spark renewed interest in its printers, he said.
"Whenever you have a weakness in end-user demand, the actions are always the same -- you (need) to drive more demand of branded hardware, which is what we are focused on," he said.
Lexmark, which makes printers that computer maker Dell Inc. (DELL.O: Quote, Profile, Research) sells under its own brand name, said third-quarter revenue from sales of laser and inkjet printers fell 10 percent from a year earlier due to aggressive pricing and slack demand.
Revenue from sales of supplies, including ink and toner replacement cartridges, rose 1 percent.
Increased sales of lower-priced printers pushed margins down to 29.4 percent from 35.2 percent a year earlier.
Lexmark said it expects fourth-quarter earnings of 40 cents to 50 cents a share, far below analysts' average view of 64 cents as compiled by Reuters Estimates.
Lexmark said it expects revenue to decline in the high-single-digit to low-double-digit percentage range.
Lexmark shares fell $2.67 to $39.79 in late afternoon trade on the New York Stock Exchange after earlier dropping to $39.49, their lowest level since late in 2000.
The shares have fallen more than 50 percent this year, including a 42 percent decline in the last three months.
In contrast, Lexmark rival Hewlett-Packard's shares are up 31 percent so far in 2005.
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My how the tables have turned under Hurd.
Taking share from Dell suite101.com
now kicking assets at Lexmark. |
