tool name

Wednesday, Jan. 14, 2009

Lexmark to cut 250 jobs, move 125 more

Lexmark International announced Tuesday that its fourth-quarter sales came in worse than expected, prompting a decision to cut 250 jobs and transfer roughly 125 more to lower-cost countries in the coming months.

The company would not say how many workers at its Lexington headquarters, where it employs 3,000, will be affected.

It's the fifth restructuring or work-force reduction in as many years, as the printer company continues to struggle.

Tom Carpenter, vice president and senior equity analyst at Hilliard Lyons in Louisville, called the restructuring "déjà vu." In those restructurings, the company has shuttered multiple inkjet cartridge facilities and eliminated or transferred thousands of jobs.

"Clearly Lexmark has made many changes with its restructurings, but the board of directors needs to ask itself: Have these been the right changes or have they gone far enough?" Carpenter said.

In years past, it was the inkjet division that weighed on the company. And while it still does — sales of inkjet printers fell 43 percent in the quarter — Lexmark's laser printer segment is now proving problematic, with both printer and toner sales down.

Plus, the worldwide economic slowdown has led to a decrease in demand for the company's products. And the company was a victim of fluctuating currency exchange rates in the fourth quarter.

"That creates problems when you have large swings because you can't adjust your costs quick enough to meet those fixed prices," Carpenter said.

And the price increases haven't all taken effect, because up to half of its sales in some countries come as part of contracts where prices can't change quickly.

Tuesday's announcement comes two weeks before the company is set to release its fourth-quarter earnings, which executives said were affected by "the weakening global economic environment."

During a conference call with analysts, chief executive Paul Curlander said the job cuts and transfers will focus on several areas, including the company's supply chain — the way products get to customers — and sales support.

The company did not disclose how many of the affected jobs are in Lexington or in other countries. Worldwide, Lexmark employed about 13,800 at the beginning of 2008. In Lexington, staffers conduct much of Lexmark's product research and development but also focus on sales, marketing and more. No manufacturing is done in Kentucky.

The restructuring also will affect its finance and information-technology divisions. Finance, in particular, will continue its consolidation into shared-service centers in locations such as the Philippines and Argentina, Curlander said.

The company's sales and marketing team also will be realigned. Executives declined to speak with the Herald-Leader after the call, citing a quiet period until the earnings discussion in two weeks. It's likely that the sales streamlining might be related to a cut in late November of a reported 60 sales and marketing managers and staff spread across the globe.

Curlander also said the company would consolidate some product-development programs in research and development.

But it's the inkjet division that was at that root of the company's problems.

Since 2006, Lexmark has walked away from 20 percent, and then 30 percent more, of its inkjet printer sales in an attempt to get away from people who don't print enough.

But the woes continued as the number of inkjet printers sold fell 43 percent year-over-year in the fourth quarter. The company is also dealing with store closures at Circuit City, one of its strongest retail partners.

"It brings the question again of the viability of the inkjet division," Carpenter said of the fourth-quarter performance. "If they don't get more shelf space this year (in retail outlets), I think the writing's on the wall."

Overall, revenue fell 17 percent in the quarter compared to a year earlier, worse than the company's previous prediction of a decline in the low- to mid-teens.

Sales of ink and toner fell 12 percent and declined for both laser and inkjet. In past quarters, sales of laser toner had generally performed well.

The number of laser printers sold fell 8 percent.

"That was the part of the company that for the most part delivered steady and consistent profits," Carpenter said.

The lower-than-expected profit in the laser division stemmed from the currency-exchange issues, Curlander said.

With most of Lexmark's costs valued in dollars and with the U.S. dollar rising compared to other currencies, the prices in those foreign currencies don't bring as high a return as they once did.

And the price increases came with some issues of their own. The company said retailers and other buyers tended to buy up more Lexmark inventory as it anticipated price increases.

With higher inventories, they're less likely to buy again in the first quarter, Curlander said.

And business customers will be buying less from those retailers, as most are cutting back on expenses during the recession, said Larry Jamieson of industry tracker Lyra Research.

"People are saying, 'Do you really need to print that page?'" he said.

And with fewer people buying Lexmark printers, "it's a double whammy for them."

"They've had problems before the meltdown," he said. "And this is a continuation of those issues."