As Lexmark International prepares to announce third-quarter earnings on Tuesday, observers are eager to see if the company can maintain its intense growth pace of late.
In the second quarter, the Lexington-based printer maker saw revenue increase 14 percent and profit soar 400 percent.
That 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.
At the time, Lexmark executives forecast revenue to be up in the third quarter in the mid- to high-single digit percentage range year-over-year. Company officials said they expected earnings in the range of 90 cents to $1 a share excluding restructuring charges. Analysts on average expect 97 cents a share.
The company is in a quiet period before the earnings announcement and representatives declined to comment.
Driving the recent growth has been the company's laser printer division, which has turned in back-to-back quarters of 20 percent revenue growth year-over-year.
"Certainly keeping up that pace will be tougher as the year goes on," said Ed Crowley, founder of Versailles-based printer industry research firm The Photizo Group. "They had kind of an easier comparison to last year because the market was so depressed.
"Having said that, they've done a really good job of growing their managed print services business, and I think that's a good opportunity to have strong revenue performance."
Managed print services is an industry segment in which printer companies are hired by businesses 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.
The company has boasted of growth in its MPS business, though it declines to break out those numbers for investors and analysts.
In the second quarter, the company's laser division 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.
Crowley cautioned that the laser division's growth numbers might slacken some on laser printer shipments.
"One of the things you're probably going to see as the MPS business grows is that it may have the effect of helping to level out unit shipments," he said. "It's an annuity type of business, so what happens is you grow the revenue but that doesn't necessarily equate to unit shipment growth."
Crowley noted, too, that Lexmark has succeeded this year at scoring more global MPS accounts.
"They've had a strategy of winning on the regional basis and leveraging that on global accounts," he said. "I think they're going to have a very good year."
The third quarter could also be telling for the company's inkjet division, which has struggled in recent years.
In the second quarter, the division's 2 percent year-over-year revenue drop got it the closest yet to ending a string of year-over-year revenue declines dating to the second quarter of 2005. Sales declines in the interim have ranged from 4 percent in the third quarter of 2005 to 28 percent in the fourth quarter of 2008.
The company may still see a revenue decline for the division, though. In a recent report to investors, Barclays Capital analyst Ben Reitzes suggested Lexmark's inkjet performance may have slowed in the third quarter, as demand appeared weaker.
Lexmark has sought to radically shift its inkjet offerings in recent years, a move that while economically painful at any time was compounded by the global recession.
The company has pulled away from low-end devices that sold in large numbers but were bought by people who didn't print much.
Lexmark has instead developed and released higher-end products with features like touch screens and high degrees of customization. The company's newest offering, the Genesis, features a touch screen and boasts a new type of technology that dramatically speeds up the process of scanning documents. It goes on sale next year.
These devices, which also allow for functions like copying and faxing, appeal to people who use lots of ink.
The proof is in the numbers. 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.
The new printers have helped the company gain 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.