Lexmark International Inc.
) has posted fourth quarter 2012 earnings per share (EPS) of 61
cents, missing the Zacks Consensus Estimate of 91 cents and the
company's guidance range of 82-92 cents. The miss was mainly
attributable to higher- than-expected tax rate, which was due to
mix shift toward higher tax regions.
Lexmark's fourth quarter revenue of $967.4 million dropped 8.7%
from $1.06 billion in the year-ago quarter but was higher than
the Zacks Consensus Estimate of $935.0 million. The
year-over-year decline was better than the company's expected
range of 10.0-12.0% decline. The dampened year-over-year
comparison was due to currency headwinds, weakness in Europe and
its exit from the Inkjet business. However, decent growth in
Perceptive Software and Managed Printing Services (MPS) provided
On a year-over-year basis, Hardware revenues declined 15.0% while
Supplies dropped 10.0%. However, Software and Other revenue
climbed 27.0% (25.0% organic growth).
Imaging Solutions and Services (ISS) revenue decreased 10.0% year
over year. The decline moderated from 13.0% year-over-year
decrease recorded during the preceding quarter. Within ISS,
revenues from MPS grew 3.0%, which was offset by 9.0% decline in
non-MPS revenues. Perceptive Software revenues grew 37.0% year
over year to $42.0 million. Revenues were flat when compared
Gross margin in the quarter was 34.1%, down from 37.4% in the
year-ago quarter due to unfavorable mix.
Reported operating margin was 2.6% compared with 8.8% in the
year-ago quarter. Total operating expense increased 0.3% due to a
3.7% rise in selling, general and administrative expense and
higher one-time expenses. This was mostly offset by a 10.4%
decline in research and development expenses.
Net income on a GAAP basis was $6.3 million or 10 cents per share
compared with $69.3 million or 94 cents in the year-ago quarter.
Adjusting for restructuring-related charges as well as
acquisition-related adjustments, non-GAAP net income was 61 cents
per share compared with $1.25 in the year-ago quarter.
Balance Sheet & Cash Flow
Lexmark ended the quarter with $905.8 million in cash, cash
equivalents and marketable securities, up from $859.3 million in
the previous quarter. Trade receivables were $523.6 million and
inventories were $277.3 million. The company's long-term debt
balance remained flat sequentially at $649.6 million.
The company generated $138.0 million in cash from operations, up
from $133.0 million in the previous quarter. Capital expenditures
totaled $38.0 million, flat sequentially.
Lexmark bought back shares worth $0.7 million during the fourth
quarter. Moreover, the company paid a quarterly dividend of 30
cents per share, totaling $19.0 million.
For the first quarter of 2013, management expects revenue to
decline 11.0% to 13.0% year over year. The weak guidance includes
negative impact from the exit of inkjet business. Earnings on a
GAAP basis are expected in the range of 43-53 cents per share.
Excluding the restructuring charges and acquisition-related
adjustments, non-GAAP earnings are expected in the range of 80
cents-90 cents. However, the Zacks Consensus Estimate for the
first quarter is pegged at $1.04, which is above the company's
The management also expects to save roughly $85.0 million in
costs through 2013, helped by restructuring initiatives announced
in Aug 2012. The company also plans to pursue acquisitions to
strengthen product portfolio. It also affirmed its view to return
50.0% of free cash flow to shareholders through share buybacks
Lexmark's fourth quarter results were not encouraging as its EPS
missed the Zacks Consensus Estimate by a wide margin. Revenues
came below the year-ago period but were better than expected.
Guidance for the first quarter was deterring, too, reflecting
inkjet exit and macro uncertainty. Though new products launched
and acquisitions made during the quarter could win back lost
market share, their impact on results could still be some way
But we see the inkjet exit as a positive. Lexmark will now be
able to focus more on MPS and software revenue.
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. It has been
declared a leader in this market by research firms IDC and
Gartner. The company recently clinched a 5-year deal from the
renowned oil and gas producer
) for an undisclosed sum.
Though constant pricing pressure from competitors such as Canon
) and a high debt burden will be a concern, we expect Lexmark to
turn the table with increased focus on software and services.
Currently, Lexmark has a Zacks Rank #4 (Sell).
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