Renowned printing and imaging solutions provider,
Lexmark International Inc.
(
LXK
) announced some operational changes to boost its earnings
potential and cash position. Post-announcement, Lexmark shares
surged.
According to the restructuring plan, Lexmark will abandon its
consumer-based inkjet hardware (printers) business, which failed to
generate profits for the past few quarters. The company intends to
focus more on the high-margin imaging and software solutions
business. However, Lexmark will continue to provide Inkjet supplies
and software services.
Concurrent with this decision, Lexmark is also planning to shut
down its inkjet supplies manufacturing facility situated in Cebu,
Philippines, by 2015. The closure of the plant will result in a
reduction of 1,700 employees.
The exit from the Inkjet business is expected to save cash of
roughly $85.0 million annually in 2013 and roughly $95.0 million
annually by 2015. But the company has to record a pre-tax severance
charge of $110.0 million in 2012, $30.0 million in 2013, and $10.0
million in 2014 and 2015 each.
Apart from the restructuring plans, Lexmark also announced the
continuation of its share buyback program. As per the plan, the
company will spend an additional $100.0 million on common share
repurchases by the second half of 2012. Moreover, the board of
directors has approved authorization for another $200.0 million
buyback.
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 mobile devices.
Though its strength in the Managed Printing Services arena is a
positive for Lexmark, constant price wars amongst competitors such
as Canon Inc.,
Xerox Corp.
(
XRX
) and
Hewlett-Packard Co.
(
HPQ
) and a high debt burden will keep the company's fundamentals under
pressure.
Currently, Lexmark has a Zacks #5 Rank, implying a short-term
Strong Sell rating.
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