Lexmark earnings, revenue up

Lexmark International announced Tuesday much higher earnings for the first quarter of 2010.

First-quarter revenue of $1.04 billion increased 10 percent compared with the same quarter last year, but it was down 3 percent from the fourth quarter of 2009. Earnings were $1.20 a share, up from $0.75 a share for the same quarter of 2009.

Lexmark Chairman Paul Curlander said in a release the first-quarter results "were significantly better than expected, reflecting strong customer demand for our hardware and supplies products."

"In addition to improved market conditions, these strong results were also driven by the many actions we've taken over the last two years to expand and strengthen our product line, to advance our solutions and managed-print services business, and to reduce our cost and expense infrastructure."

The company said its gross profit margin in the first quarter was 36.9 percent versus 35.3 percent in 2009. Operating expenses were $251 million for the quarter, compared with $259 million last year.

Lexmark credited its performance to, among other things, maintaining a strong financial position, with more than $1.2 billion in cash and marketable securities, and building on strengths, such as its business customers.

Analysts had expected the company to post earnings of 89 cents a share, on revenue of $961.1 million, according to a consensus survey by Thomson Reuters.

Analysts said Lexmark's torrid earnings pace might be tough to sustain.

"The margins we saw today are probably not sustainable in the second half of the year," said Shannon Cross of Cross Research. "In order to grow the top line, they need to be more aggressive in small and mid-size business. ... All of that is going to cost them."

Tom Carpenter of Hilliard Lyons said Lexmark has traditionally given analysts and investors "conservative guidance" on future earnings, "so it wouldn't be a shock if their results turn out to be more favorable than management suggests."

He also said there are "a lot of questions about what Lexmark is going to do with the cash" — the $1.2 billion in cash and marketable securities that Lexmark has, most of its overseas.

Carpenter noted it "gives the firm flexibility on acquisitions, share buybacks or going private."