Lexmark International Inc.
(
LXK
) has posted first quarter 2012 earnings per share (
EPS
) of $1.05, in line with the Zacks Consensus Estimate. The reported
EPS was tilted toward the higher end of the company's guidance
range of 98 cents to $1.08. A challenging macro environment
impacted Lexmark's results in the quarter. Shares fell 6.48% in the
day's trade, though no movement was noticed in after hours.
Revenue
Lexmark's first quarter revenue of $992.5 million dropped 4.1%
from $1.03 billion in the year-ago quarter and was better than the
Zacks Consensus Estimate of $987.0 million. The year-over-year
decline was consistent with the company's expectation.
On a year-over-year basis, Hardware revenues declined 9.0% while
Supplies dropped 4.0%. However, Software and Other revenue climbed
10.0%.
Imaging Solutions and Services revenue decreased 5.0% year over
year to $963.0 million. Perceptive Software revenue grew 41.0% year
over year to $30.0 million.
Operating Results
Gross margin in the quarter stood at 38.4% compared with 37.6%
in the year-ago quarter.
Reported operating margin was 9.0% compared to 10.9% in the
year-ago quarter. Total operating expense increased 5.7% due to a
6.4% rise in research and development expense and 2.0% upside in
selling, general and administrative expenses.
Net income on a GAAP basis was $60.8 million or 84 cents per
share compared to $83.3 million or $1.04 in the year-ago quarter.
Adjusting for restructuring-related charges and project costs as
well as acquisition-related adjustments, non-GAAP net income was
$76.0 million or $1.05 per share compared to $91.0 million or $1.14
per share in the year-ago quarter.
Balance Sheet & Cash Flow
Lexmark ended the quarter with $949.4 million in cash, cash
equivalents and marketable securities, down from $1.15 billion in
the previous quarter. The reduced cash balance was due to share
buyback, dividend payment and three consecutive acquisitions during
the quarter. Trade receivables were $474.3 million and inventories
$328.6 million. The company's long-term debt balance remained flat
year over year at $649.4 million.
The company generated $92.0 million in cash from operations,
down from $164.0 million in the previous quarter. Capital
expenditures totaled $48.0 million versus $46.0 million in the
prior quarter.
Lexmark bought back shares worth $30.0 million during the first
quarter. The company had roughly $211.0 million remaining under its
existing share repurchase authorization at quarter end. Moreover,
the company paid a quarterly dividend of 25 cents per share,
totaling $18.0 million.
Guidance
For the second quarter of 2012, management expects revenue to
decline 7.0% to 9.0% year over year. Earnings on a GAAP basis are
expected in the range of 65-75 cents per share.
Excluding 14 cents per share for restructuring charges and 16
cents for acquisition-related adjustments, non-GAAP earnings are
expected in the range of 95 cents-$1.05. However, the Zacks
Consensus Estimate for the second quarter is pegged at $1.10, above
the company's guided range.
During the fourth quarter, Lexmark announced major restructuring
plans for 2012. The restructuring effort will include developing
new business products and forming new distribution channels. The
company expects these actions to be operational by the end of the
first quarter of 2013.
The major restructuring initiative will attract total pre-tax
charges of approximately $35.0 million. On the other hand, the
program will generate cash savings of approximately $15.0 million
in 2012 and roughly $28.0 million in 2013.
Our Take
Lexmark's first quarter results were a mixed bag with the top
line matching the Zacks Consensus Estimate and the bottom line
surpassing the same. The company also provided an unimpressive
revenue outlook for the second quarter of 2012. Though new products
launched during the quarter could win back lost market share, their
impact on results could still be some way off.
Lexmark is doing really well in the Managed Printing Services
(MPS) market. It has been declared a leader in this market by the
research firms IDC and Gartner. The company recently clinched a
5-year deal from the U.S. Department of Agriculture for a sum of
$50.0 million.
Lexmark operates in a highly competitive market. So, there is a
constant price war among major players such as
Xerox Corp.
(
XRX
) and
Hewlett-Packard Co.
(
HPQ
) to snatch market share from one another. On top of that, the
market is narrowing with the advent of digital technology and
e-commerce.
However, Lexmark may benefit from its retail presence as it
sells through
Best Buy Co.
(
BBY
) stores in the U.S.
Currently, Lexmark has a Zacks #2 Rank, implying a short-term
Buy rating.
BEST BUY (
BBY
): Free Stock Analysis Report
HEWLETT PACKARD (
HPQ
): Free Stock Analysis Report
LEXMARK INTL (
LXK
): Free Stock Analysis Report
XEROX CORP (
XRX
): Free Stock Analysis Report
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