In conjunction with its second-quarter earnings announcement on Tuesday, Lexmark International said it will close another of its inkjet cartridge-manufacturing plants in Mexico.
The move, which will cost the company about $24 million before taxes, will affect about 650 jobs. The company estimates most of the jobs at the Chihuahua, Mexico, plant will be moved to a lower-cost country. The company continues to operate a plant in Juarez, Mexico, where it closed one of two plants last year. It also has a plant in Lapu-Lapu City in the Philippines.
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The closure is expected to save the company about $9 million annually beginning in 2009.
The goal is to improve the company's struggling inkjet division, which has dragged on the health of the company since the latter half of 2005 and continues to weigh down earnings, as evidenced in Tuesday's announcement.
Earnings for the second quarter included a 6 percent revenue drop but exceeded analysts' expectations. That revenue drop was linked to the inkjet division, which sold 49 percent fewer printers in the quarter than in the same period a year earlier.
The company generated $1.14 billion in revenue total in the second quarter and recorded a net income of $83.7 million, up from $64.2 million in the same period a year ago.
Earnings per share were 89 cents but would have been 96 cents excluding a 7 cents-per-share restructuring charge related to last year's inkjet strategic shift that included the earlier announcement of the Juarez plant closure. Analysts expected earnings of 78 cents per share excluding restructuring, according to a survey by Thomson Financial.
The inkjet division's revenue fell 21 percent year-over-year to $376 million in the quarter, as the company continued to withdraw from some of its inkjet sales that it has said were not meeting profit expectations. The company also attributed the slide to a “slowdown in the inkjet market.”
Shipments of inkjet hardware fell a staggering 49 percent year-over-year as the company suffered from weakness in the U.S. and European markets, losses in shelf space at domestic retailers, and its previously announced decision to exit 30 percent of its inkjet sales. The company has not named specific retailers, but the company's products were taken off shelves earlier this year at major electronics retailer Best Buy. Several remain available at www.bestbuy.com.
The lower-than-expected inkjet printer sales boosted operating income, as many of those types of printers are sold at a loss with the expectation that cartridge sales will bring the profit.
Earnings also were helped by a one-time $5 million tax benefit that dropped the tax rate to 19.2 percent rather than the expected 26 percent rate.
Company executives were discuss the earnings with analysts today during an 8:30 a.m. conference call that is to be blogged live on Kentucky.com.
In the second quarter, the laser printer division's revenue grew 4 percent to $763 million. Unit shipments declined 12 percent but reflected a strong growth in multi-function products, the company said. Average unit revenue on laser shipments increased 4 percent, reflecting the shift to the higher-priced units.
The company saw record revenue for laser toner, but that was offset by a drop in the sale of ink.
Operating expenses company-wide continued to climb, a move that has been criticized by some analysts. Much of those expenses in recent quarters have been in the laser division, where the company has invested in hiring more sales people to pitch a product line that has expanded in recent years due to increased research and development spending.
In the second quarter, operating expense rose 2.6 percent to $312 million and the company attributed it principally to increasing demand generation, which typically means hiring salespeople, as well as increased marketing.
The company also announced that it recently signed a five-year, multi-million dollar contract with Washington Mutual to manage more than 25,000 printers throughout the consumer and small-business bank's 2,300 locations in the United States.
Lexmark also repurchased shares during the second quarter for the first time in a few quarters. The company, which issued $650 million in long-term debt in a series of bonds during the quarter, announced that it repurchased $158 million in shares, or about 4.5 million, during the quarter.
The company had not bought back shares in recent quarters because it probably would have been forced to finance them by repatriating cash from overseas and paying the taxes that come with that.
Looking forward, the company said it expects revenue to be down in the third quarter in the mid- to high-single digit percentage range year-over-year. The company expects earnings per share of between 53 cents to 63 cents, excluding restructuring charges.Before Tuesday's announcement, analysts expected 58 cents per share, according to Thomson Financial.