Pricing Pressure Squeezes Lexmark's 1Q Results

The Lexington, Ky.-based document hardware maker turned in sales of nearly $1.36 billion, an 8 percent year-over-year gain. Earnings also rose to $124 million, or 96 cents per share, from $121 million, or 91 cents per share, a year earlier.

Wall Street, however, projected Lexmark's earnings for the first quarter of 2005 at $1.03 per share, and news of the shortfall sent Lexmark's stock price plunging. Through early afternoon Tuesday, the company's shares dropped more than 11 percent, or more than $9 per share, to $69.69 on the New York Stock Exchange.

The company turned in a "solid operational performance" but was "impacted by challenging market conditions," Lexmark CEO Paul Curlander told financial analysts during a teleconference.

"During the quarter in the consumer segment, we saw continued weak market demand," Curlander said. In the commercial markets, he said, "we saw a return to aggressive price competition." Those market conditions may stretch through the second quarter, he added.

"I think the story in the market conditions was really in the aggressive pricing competition, particularly in inkjet," Curlander said.

Also impacting Lexmark's first-quarter results was what CFO Gary Morin described as an accounting impropriety in the company's Spain unit between 2002 and 2004. "We do know the former senior finance employee of Lexmark Spain, whose employment was terminated, did not account for accounts receivable appropriately, which led to errors or aging or delinquency of accounts," Morin said. "We have no evidence of theft, and we are currently gathering documents and working with customers to collect as much of the delinquent receivables as we can."

The company didn't provide further details.

Lexmark's news did nothing to boost the Wall Street standing of rivals such as Hewlett-Packard nor that of a key OEM customer, Dell. Through early afternoon trading, HP's shares dropped 71 cents per share, to $20.39, on the New York Stock Exchange and Dell's shares on Nasdaq were down 86 cents to $35.85. HP and Dell report their earnings next month.