LXK: Lexmark Trips Up

From William Trent, CFA of Stock Market Beat

When we previewed earnings this week we said “Lexmark (LXK) – Estimates are doable but we’re always waiting for this company to trip up.” Right on cue, the company tripped up.

Lexmark reports first quarter results:

Lexmark International, Inc. (NYSE: LXK – News) today announced financial results for the first quarter of 2007. First-quarter revenue was $1.261 billion, down 1 percent compared to revenue of $1.275 billion last year. First-quarter earnings per share were $0.95. Earnings per share for the first quarter of 2007 would have been $0.96 excluding $0.01 per share restructuring-related charges. First-quarter 2006 earnings per share were $0.78. Earnings per share for the first quarter of 2006 excluding $0.31 per share restructuring-related charges and $0.06 per share pension curtailment gain would have been $1.03.

Consensus estimates called for $1.03 on $1.26 billion in sales. For next quarter the Street was expecting $1.00 in EPS on $1.24 billion in sales, which will also be missed:

In the second quarter of 2007, the company expects revenue to be down in the low- to mid-single digit percentage range year over year. It expects second-quarter 2007 EPS to be in the range of $0.82 to $0.92. EPS in the second quarter of 2006 were $0.74, or $1.09 excluding $0.35 per share restructuring-related charges.

Challenges included OEM unit sales that continued to be weak, declines in inkjet supplies sales, and hardware pricing that was fairly aggressive in both laser and inkjet markets,” [CEO Paul] Curlander said.

In particular, the OEM with the weak sales is Dell (DELL), with whom Lexmark has a distribution arrangement. Given the well-known weakness at Dell it is somewhat surprising Lexmark shares had done as well as they did. Our experience with Lexmark over the last four years has taught us that the only thing we can count on is not to count on anything.

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