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A Dark Day for Lexmark

The printer maker reported disappointing results and guidance, sending its stock down 9%

After under-pricing rivals with the November 1997 launch of its $99 color inkjet printer, Lexmark International (LXK) has been getting a taste of its own medicine during recent months. As the Lexington (Ky.) company struggles against its competition, its stock price fell on Apr. 24 after reporting disappointing first-quarter earnings.

The company earned $92.4 million during the first quarter, including $2 million of restructuring-related charges, up nearly 7% compared to the same period last year. But revenue fell 1% year-over-year to $1.261 billion. "While our results were in line with the guidance ranges we provided on our January call, we view this as a mixed quarter for Lexmark," CEO Paul J. Curlander said in a press release Apr. 24.

Excluding the penny per share restructuring charges, Lexmark's earnings per share during the first quarter would have amounted to 96 cents. Analyst surveyed by Thomson Financial had forecast $1.03. The stock dropped 9% to $56.44 on heavy volume on the New York Stock Exchange.

In the color inkjet printer market, Lexmark faces rivals such as Hewlett-Packard (HPQ), Epson, and Canon, which together account for about 75% to 80% of the market, S&P says. HP alone dominates the laser printer market with about a 40% market share.

Lexmark is fighting to elbow into a better position by introducing more products. For example, on Apr. 24 the company introduced new color laser printers such as the X782e and the X940e family for business workgroups, and the X500n family for desktop users and smaller workgroups.

Now the company expects to earn 82 cents to 92 cents per share during the second quarter on revenue that is down in the low- to mid-single digit percentage range year-over-year. The consensus estimate had been for $1.03 per share.

"Although we see growth in branded products and laser printers, we still look for pressure from competition, and see lower-end system sales hurting results," Standard & Poor's Equity Research analyst Clyde Montevirgen said in a research note. He cut his 2007 earnings per share estimate by 7 cents to $3.62 and a target price on the stock by $4 to $54. (S&P, like, is owned by The McGraw-Hill Companies.)

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