Lexmark Announces 1Q Results
April 25, 2007
Lexmark International, Inc. (NYSE: LXK) announced financial results for the first quarter of 2007. First-quarter revenue was $1.261 billion, down 1 percent compared to revenue of $1.275 billion last year. First-quarter earnings per share were $0.95. Earnings per share for the first quarter of 2007 would have been $0.96 excluding $0.01 per share restructuring-related charges. First-quarter 2006 earnings per share were $0.78. Earnings per share for the first quarter of 2006 excluding $0.31 per share restructuring-related charges and $0.06 per share pension curtailment gain would have been $1.03.
“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. Among the factors affecting our results were some strong positives, some challenges, and some investments we believe are necessary to continue to strengthen our competitive position and to position us for long-term growth," said Paul J. Curlander, Lexmark chairman and chief executive officer.
"On the positive side, highlights for the quarter included strong branded unit growth in the key focus segments of color laser, laser all-in-ones, and inkjet all-in-ones. Total branded hardware revenue was up year to year for the fourth straight quarter. We saw good revenue growth in our business market segment in both core hardware and supplies revenue. Branded inkjet units were up year to year, starting to recover after unit declines in 2006. Challenges included OEM unit sales that continued to be weak, declines in inkjet supplies sales, and hardware pricing that was fairly aggressive in both laser and inkjet markets," Curlander said.
"During the quarter we continued to step up our investments in brand development and R&D. Given the strength of our product line, we are now increasing our investment in demand generation in all customer segments. While these investments negatively impact results in the current quarter, we believe we will see the benefit from these investments in the future," said Curlander.
First-quarter 2007 business segment revenue of $737 million grew 7 percent year to year and consumer segment revenue of $523 million declined 11 percent compared to a year ago. First-quarter 2007 gross profit margin was 33.5 percent, the operating expense to revenue ratio was 23.9 percent, and operating income margin was 9.6 percent. First-quarter 2007 results include $2 million net restructuring-related pretax charges. This $2 million net impact is comprised of $1 million in cost of revenue and $1 million in operating expense.
First-quarter 2006 gross profit margin was 31.7 percent, the operating expense to revenue ratio was 22.2 percent, and operating income margin was 9.5 percent. First-quarter 2006 results include $50 million restructuring-related pretax charges and $10 million pretax pension curtailment benefit resulting in a net impact of $19 million in cost of revenue and $21 million in operating expense.
Excluding first-quarter restructuring-related charges and the first-quarter 2006 pension curtailment benefit:
• First-quarter 2007 gross profit margin would have been 33.7 percent, up 60 basis points from 33.1 percent in the same period last year principally due to a reduction in inkjet hardware units partially offset by lower product margins.
• First-quarter 2007 operating expense as a percentage of revenue would have been 23.9 percent, up 330 basis points from 20.6 percent in the same quarter last year driven by increased demand generation and product development investments.
• First-quarter 2007 operating income margin would have been 9.8 percent, down 280 basis points from 12.6 percent last year reflecting R&D and demand generation investments to drive future sales.
First-quarter net cash provided by operating activities was $87 million. Capital expenditures for the quarter were $49 million. Lexmark repurchased approximately 2.7 million shares of its stock during the quarter for $165 million. The company’s remaining share repurchase authorization was about $295 million at quarter end. The company ended the quarter with $443 million in cash and marketable securities.
New products capitalize on important industry dynamicsToday, the company introduced an entire new line of products focused on the rapidly growing color laser segment. The company’s new color laser MFP line includes the X782e and the X940e family for business workgroups, and the X500n family for desktop users and smaller workgroups. The Lexmark C780n and the C935dn printer families are designed for business workgroups that need access to high-quality, reliable color printing technology at affordable prices. These new color lasers significantly increase Lexmark’s offerings in this important growth segment.
Lexmark continues to receive important industry recognition for its color laser products.
• The Lexmark X500n and X502n MFPs announced today received Editor’s Choice recognition - the top award from independent reviewer Better Buys for Business.
• The Lexmark C500n and the Lexmark C530dn recently ranked in the top five of PC World’s Top 10 Color Laser Printers list.
• The Lexmark C530dn, C532n, and C532dn recently received “Excellent” ratings from CNET.com and the C532n was recently listed as one of the site’s favorite printers for under $500.
• The Lexmark C770n recently received a four-star rating from PC Magazine.
• The Lexmark C770 and C772 series recently received Editor’s Choice awards from Better Buys for Business.
• The Lexmark C920 series was recently named Editor’s Choice by Better Buys for Business for the second year in a row.
Last week, the company announced that, with the introduction of its 2007 inkjet product line, Lexmark will offer the broadest, most affordable range of wireless printers in the market. The company believes that consumers are embracing wireless networking with the rapid adoption of wireless laptop computers and wireless routers. Demonstrating its commitment to leadership in wireless printing, eight out of Lexmark’s 12 new inkjet printers being introduced in 2007 will have wireless capabilities spanning four-in-one, three-in-one and single-function printer categories. Once Lexmark’s full 2007 line is available, it will include six inkjet printers with integrated wireless and two with optional wireless capability. Available in the second quarter are the Lexmark X4550 Wireless All-in-One, the Lexmark Z1420 Wireless Color Printer, and the Lexmark X3550 Color All-in-One with wireless as an optional feature. The remaining wireless offerings will be introduced and available later this year.
New solutions leverage Lexmark’s deep and proven industry expertiseThe Lexmark Education Station announced today helps schools meet the requirements of the No Child Left Behind Act and builds on the company’s heritage of providing unique workflow solutions for education. Likewise, the Lexmark Clinical Assistant announced earlier in the quarter delivers Lexmark’s proven solutions for the health care industry in a unique way to help nursing and clinical staff with medical records management, physician order routing, card copying, and forms on demand. Both solutions utilize the company’s award-winning Lexmark X646dte monochrome laser MFP platform with unique capabilities easily accessed via the company’s intuitive eTask touchscreen interface.
