Lexmark International Inc.
) posted adjusted second quarter 2013 earnings per share (EPS) of
95 cents, surpassing the Zacks Consensus Estimate of 88 cents.
The beat was mainly attributable to better-than-expected revenue
growth and lower operating expenses. The results were above the
company's guidance range of 80-90 cents.
Lexmark's second quarter revenues of $886.7 million dropped 3.5%
from $918.6 million in the year-ago quarter but were higher than
the Zacks Consensus Estimate of $859.0 million. The
year-over-year decline was due to macro economic weakness and its
exit from the Inkjet business.
However, decent growth in Perceptive Software and Managed
Printing Services (MPS) provided good support as the
year-over-year decline was lower than the company expected range
of 6.0% - 8.0% decline. Currency headwinds were limited.
HEWLETT PACKARD (HPQ): Free Stock Analysis
GARTNER INC -A (IT): Free Stock Analysis
LEXMARK INTL (LXK): Free Stock Analysis
XEROX CORP (XRX): Free Stock Analysis Report
To read this article on Zacks.com click here.
On a year-over-year basis, Hardware revenues declined 14.0% while
Supplies dropped 4.0%. However, Software and Other revenues
Imaging Solutions and Services (ISS) revenues decreased 5.0% year
over year to $828.0 million. Within ISS, revenues from MPS grew
12.0%, which was offset by 1.0% decline in non-MPS revenues and
sale of the inkjet business. Perceptive Software revenues
(excluding acquisition-related adjustments) grew 34.0% year over
year to $62.0 million.
Gross margin in the quarter was 38.4%, down from 39.3% in the
year-ago quarter due to unfavorable mix.
Reported operating margin was 14.4% compared with 6.6% in the
year-ago quarter. The improvement was mainly due to a gain from
the sale of the inkjet business. Total operating expense
decreased 29.2% due to a 14.6% fall in research and development
expenses, 0.3% decrease in selling, general and administrative
expense and the gain from the sale of the inkjet business.
Net income on a GAAP basis was $88.9 million or $1.39 per share
compared with $39.2 million or 55 cents in the year-ago quarter.
Adjusting for restructuring-related charges as well as
acquisition-related adjustments, non-GAAP net income was 95 cents
per share compared with 89 cents in the year-ago quarter.
Balance Sheet & Cash Flow
Lexmark ended the quarter with $981.2 million in cash, cash
equivalents and marketable securities, up from $880.0 million in
the previous quarter. Trade receivables were $527.9 million and
inventories were $272.1 million. The company's long-term debt
balance was $699.6 million, flat sequentially.
The company generated $87.0 million in cash from operations, up
from $38.0 million in the previous quarter. Capital expenditure
totaled $39.0 million compared with $43.0 million in the prior
Lexmark bought back 0.7 million shares worth $20.0 million during
the second quarter. Moreover, the company paid a quarterly
dividend of 30 cents per share, totaling $19.0 million.
For the third quarter of 2013, management expects revenues to
decline 4.0% to 6.0% year over year. The weak guidance includes
the negative impact from the exit of the inkjet business.
Earnings on a GAAP basis are expected in the range of 46-56 cents
Excluding restructuring charges and acquisition-related
adjustments, non-GAAP earnings are expected in the range of 85
cents-95 cents per share. However, the Zacks Consensus Estimate
for the third quarter is pegged at 92 cents, which is toward the
higher end of company guided range.
Management also expects to save roughly $85.0 million in costs
through 2013, helped by restructuring initiatives announced in
Aug 2013. It also affirmed its view to return 50.0% of free cash
flow to shareholders through share buybacks and dividends.
Lexmark's second quarter results were impressive with both the
top and bottom lines surpassing the Zacks Consensus Estimate.
Revenues came below the year-ago period but were better than
expected. Guidance for the third quarter was deterring,
reflecting inkjet exit and macro uncertainty. Though synergies
from the recent acquisitions and renewed focus on the software
space could win back lost market share, their impact on results
could still be some way off.
But we see the Inkjet exit as a positive. Lexmark will now be
able to focus more on MPS and software revenues.
Though the restructuring and share buyback plans could boost
share prices in the near term, the overall outlook for the
printing industry will remain bearish. Demand for printers is
slowing down due to increasing usage of digital content through
Lexmark is doing really well in the MPS market and is winning
deals continuously. It has been declared a leader in this market
by research firms IDC and
Though constant pricing pressure from competitors such as Canon
) and a high debt burden will be a concern, we expect Lexmark to
turn the tables with an increased focus on software and services.
Currently, Lexmark has a Zacks Rank #3 (Hold).