Lexmark turns in strong quarter

Lexmark CEO Paul Curlander
Lexmark CEO Paul Curlander

Lexington-based printermaker Lexmark International, which, like most companies, had struggled during the recession, announced strong second-quarter results Tuesday that included a 14 percent increase in revenue and a 400 percent increase in net income year-over-year.

The results "were significantly better than expected," CEO Paul Curlander told analysts during a morning conference call, as he credited, among others, the company's laser printer division and its 20 percent revenue growth.

It was the second straight quarter that Lexmark as a whole experienced overall year-over-year revenue growth, a measure the company hadn't achieved since 2006 as it struggled under the weight of the recession and a strategic shift in its inkjet printer division.

The company's sales of $1.03 billion were driven by 26 percent growth in printer hardware revenue and 10 percent growth in ink and toner, according to company financials.

"It was a great quarter with exceptional hardware growth, supplies growth and a strong jump in average selling prices of printers," said Tom Carpenter, vice president and senior equity analyst at Hilliard Lyons in Louisville.

Laser strength

The company's growth came from its laser printer division, which saw shipments rise 7 percent. Among that 7 percent, though, was more than 30 percent growth in work group laser printers and multifunction printers, which tend to churn out more pages and use more toner than other printers.

Lexmark says its research shows its laser printer line has received the most awards domestically, and those awards and product design are translating into sales.

Lexmark also was buoyed, executives said, by its managed print services division, which is hired by companies to oversee printing. Not only does Lexmark select the company's printer fleets typically; it also often designs software to help the company go paperless on many internal workflow processes.

"We think we help customers take more cost out than any of our competitors," said Chief Financial Officer John Gamble Jr. "We've been saying, 'Print less, save more,' since before it was fashionable."

Carpenter said that while the laser division's growth is impressive now, the company will face tougher year-to-year comparisons going forward. That's because laser had seen revenue declines between the fourth quarter of 2008 and third quarter of 2009.

"Because of those tougher comparisons, the proof will be in the pudding to see if those products that have been winning awards translate into higher usage rates," Carpenter said. "The company is adamant this is the case. Wall Street is only partially convinced."

Inkjet improving

With just a 2 percent drop to $275 million, Lexmark's inkjet division got closer to ending a string of year-over-year revenue declines dating to the second quarter of 2005. Sales declines in the interim have ranged anywhere from 4 percent in the third quarter of 2005 to as high as 28 percent in the fourth quarter of 2008.

In the past few years, Lexmark has released higher-end products with features like touch screens and high degrees of customization. Many come with various functions, such as scanning and copying, and appeal to people who use lots of ink. Those replace a legacy of low-end devices that Lexmark has sought to distance itself from.

For example, in 2006, Lexmark sold 14.7 million inkjet printers. In 2009, it sold just 4.2 million. Many of those 14.7 million customers didn't print enough to give the company the sales of ink it needed to meet profit expectations. In contrast, the 4.2 million printers sold in 2009 boast features aimed at high-usage customers.

Those features have led the company to win a host of awards from printer reviewers, and the company said Tuesday that it's now the top recipient of inkjet awards in the United States in 2010.

The company also has gained more shelf space in office superstores like Staples, Office Depot and OfficeMax. Its inkjet unit share in office superstores was 8.5 percent in the first quarter, up from 5.1 percent in the first quarter of 2010. Its share of printers sold for above $100 in those stores was up to 9.5 percent in the first quarter from 4.9 percent a year ago.

Carpenter said the company is getting closer to turning the page, so to speak, on the inkjet division's continued revenue declines.

He expects the company to see year-over-year revenue increases "definitely sometime in the next year."

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