Lexmark Declines on CEO Retirement, Sales Forecast

Lexmark International Inc., the maker of laser and inkjet printers, fell after forecasting fourth-quarter sales that trailed some analysts’ estimates and saying Chief Executive Officer Paul Curlander will retire.

Lexmark dropped $10.01, or 21 percent, to $37.71 in New York Stock Exchange composite trading. It was Lexmark’s biggest decline since Oct. 4, 2005. The shares had gained 84 percent this year before today.

Curlander, 57, who plans to retire in the spring of 2011, was named executive chairman today as part of a management- succession process, Lexmark said. The Lexington, Kentucky-based company said fourth-quarter sales will grow in the “low single-digit range,” while analysts surveyed by Bloomberg estimated an average gain of 4 percent to $1.12 billion.

“It seems their core business has decelerated,” Christopher Whitmore, an analyst with Deutsche Bank AG in San Francisco, said in an interview. “The sudden announcement of a management change was just pouring gas on the fire.”

Curlander said in an interview the succession had been planned for a long time.

“I have been CEO at Lexmark for 12½ years,” he said. “In that time, Hewlett-Packard has been through four CEOs and Xerox has been through five, so I have a hard time seeing why people should be surprised by this.”

Curlander joined Lexmark when it was spun off from International Business Machines Corp. in 1991. He will be succeeded by Paul Rooke, 52, who has been with the company since its formation, most recently as executive vice president and president of the imaging solutions division since July 2007.

Laser-Printer Market

During the third quarter, Lexmark’s inventories climbed to about $392 million, an increase of 9.7 percent from a year earlier and about 16 percent from the second quarter of this year. That indicates demand is slowing, said Whitmore, who has a “hold” rating on the shares.

“The laser printer market has been supply-constrained for the past six months,” he said.

Curlander said boosting inventories was part of Lexmark’s plan to address shortages that the company encountered earlier in the year.

“We set out to bring in a bunch more product and to catch up with the back-orders to replenish our inventory,” he said. “We knew we were taking a risk of overshooting, but we wanted to build things back to the level we thought appropriate.”

Some of the inventory gain is related to deals that haven’t yet been completed, he said.

An additional weakness was European sales, Whitmore said. Including currency fluctuations, sales in Europe, the Middle East and Africa decreased 4 percent, the company said in a presentation to analysts and investors.

(Updates share price in second paragraph)
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