Laser printers drive earnings growth at Lexmark

Paul Rooke, CEO of Lexmark International
Paul Rooke, CEO of Lexmark International Lee P. Thomas

Lexmark International announced fourth-quarter and year-end earnings Tuesday that improved over 2009. They also offered more evidence that the Lexington-based printer maker is increasingly a tale of two products: its soaring lasers and inkjets that leaders continue to work to turn around.

Lexmark's growth was driven by laser printers, for which the company reported record sales. For the first time, executives also disclosed how fast a minority piece of that business — managed print services — is growing. CEO Paul Rooke said MPS, in which Lexmark manages companies' printing, grew more than 25 percent year over year, as "more and more (companies) are entertaining managed print services as a way to buy."

Ed Crowley, founder of Versailles-based printer-industry research firm The Photizo Group, said Lexmark is doing well at winning accounts but questioned how much longer it can keep up that pace of growth. He said that within two years, customers will be looking for MPS to be provided by companies with massive global footprints, such as the leaders in that segment — HP, Xerox and Ricoh.

"That's where I think being in the second tier like Lexmark is going to be a huge challenge because you just don't have the kind of capital to fund it," Crowley said.

Meanwhile, Lexmark continued its efforts to turn around the inkjet portion of its business. The company has been reducing the number of low-end products it sells and has seen mass-market retailers drop its printers, accordingly. Because of that, hardware revenue fell 21 percent year over year.

"Low hardware prices only attract low-usage customers," Rooke told analysts.

The company is focused instead on business customers who will print more, and it has increased its shelf space at office superstores.

"There will still be some mass merchants that may carry some products of ours, but clearly we're improving our mix in other segments of retail," Rooke added.