Lexmark International Inc.
) has posted first-quarter 2013 earnings per share (EPS) of 88
cents, surpassing the Zacks Consensus Estimate of 86 cents. The
beat was mainly attributable to better-than-expected revenue
growth and lower operating expenses. The results were within the
company's guidance range of 80-90 cents.
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Lexmark's first-quarter revenues of $884.3 million dropped 10.9%
from $992.5 million in the year-ago quarter but was higher than
the Zacks Consensus Estimate of $876.0 million. The
year-over-year decline was better than the company's expected
range of 11.0%-13.0% decline. The dampened year-over-year
comparison was due to weakness in Europe and its exit from the
Inkjet business. However, decent growth in Perceptive Software
and Managed Printing Services (MPS) provided good support.
Currency headwinds were limited.
On a year-over-year basis, Hardware revenues declined 9.0% while
Supplies dropped 16.0%. However, Software and Other revenues
climbed 34.0% (37.0% organic growth).
Imaging Solutions and Services (ISS) revenues decreased 13.0%
year over year to $840.0 million. Within ISS, revenues from MPS
grew 10.0%, which was offset by 12.0% decline in non-MPS
revenues. Perceptive Software revenues (excluding
acquisition-related adjustments) grew 54.0% year over year to
Gross margin in the quarter was 37.8%, down from 38.4% in the
year-ago quarter due to unfavorable mix.
Reported operating margin was 6.1% compared with 9.0% in the
year-ago quarter. Total operating expense decreased 3.9% due to a
15.9% fall in research and development expenses, partially offset
by a 6.5% increase in selling, general and administrative
Net income on a GAAP basis was $34.8 million or 54 cents per
share compared with $60.8 million or 84 cents in the year-ago
quarter. Adjusting for restructuring-related charges as well as
acquisition-related adjustments, non-GAAP net income was 88 cents
per share compared with $1.05 in the year-ago quarter.
Balance Sheet & Cash Flow
Lexmark ended the quarter with $880.0 million in cash, cash
equivalents and marketable securities, down from $905.8 million
in the previous quarter. Trade receivables were $493.5 million
and inventories were $276.3 million. The company's long-term debt
balance was $699.6 million, significantly up from $299.6 million
in the prior quarter.
The company generated $38.0 million in cash from operations,
significantly down from $138.0 million in the previous quarter.
Capital expenditures totaled $43.0 million compared with $38.0
million in the prior quarter.
Lexmark bought back 0.9 million shares worth $21.0 million during
the first quarter. Moreover, the company paid a quarterly
dividend of 30 cents per share, totaling $19.0 million.
For the second quarter of 2013, management expects revenues to
decline 6.0% to 8.0% 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 42-52 cents
Excluding the restructuring charges and acquisition-related
adjustments, non-GAAP earnings are expected in the range of 80-90
cents. However, the Zacks Consensus Estimate for the second
quarter is pegged at 88 cents, which is at the higher end of
company's guided range.
Management also expects to save roughly $85.0 million in costs
through 2013, helped by restructuring initiatives announced in
Aug 2013. 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 first-quarter results were decent with both the top and
bottom lines surpassing the Zacks Consensus Estimates. Quarter
results came below the year-ago period but were better than
expected. Guidance for the second quarter was deterring,
reflecting inkjet exit and macro uncertainty. Though acquisitions
(Twistage and AccessVia) made during the quarter and renewed
focus on the software space could win back lost market share,
their impact on results could still be some way off.
However, 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. 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 tables with an increased focus on software and services.
Currently, Lexmark has a Zacks Rank #3 (Hold).