Lexmark sales, earnings fall in first quarter

Lexmark International met analyst expectations, but the Lexington-based company announced first-quarter earnings Tuesday that included drops in revenue and profit.

The quarter continued to showcase the difficulties the company faces as it shifts its strategy to focus exclusively on business customers.

"This quarter is another step of progress," CEO Paul Rooke told the Herald-Leader. "Fundamentally, our business strategy is still on track."

He noted the company continues to see some drag from printers it is phasing out. To illustrate the issue, Lexmark has divided its business into what it calls "core" products, which it will continue to market, and "legacy" devices that are being phased out in favor of the higher-end business-focused printers on which users are expected to print more.

Using the comparison, the company said its legacy products accounted for just 11 percent of revenue in the quarter, down from 15 percent in the same quarter a year ago.

"By 2015, it becomes less of a headwind for us," Rooke said. "That will naturally take its course. There's nothing we can do about that.

"We're focused on growing the core."

But even the core products saw some difficulty in the quarter. The company said growth in sales of large workgroup laser printers was dragged down by a 36 percent drop in sales of small workgroup printers.

Small workgroup printers include smaller laser printers and newer business-style inkjets. Some of that drop came from the company shifting sales of some of the devices away from retailers like office superstores to printer and copier resellers as it looks to better target businesses.

For the quarter, the sale of ink and toner also was dragged down by legacy products. The company did get a boost, though, from resellers purchasing more ink and toner in advance of a planned April price increase. But that decision to stock up now is expected to adversely affect the company's results in the second quarter, when executives said they expect revenue will fall 7 percent to 9 percent year over year.

The quarter also saw some bright spots. The company said its burgeoning software division saw revenue grow 41 percent year over year, or 18 percent if you exclude revenue from software company acquisitions made since last year's first quarter.

The company also continued to see revenue grow above double-digit percentages for its managed print services offerings, in which Lexmark manages the printing of businesses for them.

Rooke said the company has won 20 new Fortune 500-level accounts in the past two years.

"We continue to win more than our fair share," he said. "Competitively, it's us and Xerox."

Lexmark's managed print services were discussed by Xerox CEO Ursula Burns during the company's quarterly earnings call Monday.

"The competitors that we compete actively against are HP, Lexmark and us," she said. "I'll break out HP, of those three, as behind both Lexmark and Xerox.

"Lexmark is a very specific segment kind of a player," she told analysts. "They pick an industry and go after that industry. And the good news about that is that it leaves all the rest of the industries for us to focus on."