Lexmark Sales To Dell Soar As Profits Dive

The Lexington, Ky.-based printer maker reported fourth-quarter earnings that, while beating Wall Street estimates, represented a drop of more than 40 percent over the same quarter a year earlier. During the year, though, the company reported sales to OEM customer Dell soared.

Lexmark turned in earnings per share of 71 cents, compared with the average Wall Street estimates of 50 cents per share. However, that compared with earnings per share of $1.18 for the fourth quarter of 2004 and was boosted by $200 million worth of share repurchases Lexmark made during the quarter.

The company's revenue for the fourth quarter was $1.37 billion, a decline from $1.54 billion from the same quarter a year earlier.

"Currently, these operating results are not reflective of where we want to be," said Paul Curlander, Lexmark's chairman and CEO, in a conference call with financial analysts. As a result, the company was taking two significant actions surrounding restructuring: shutting down a manufacturing plant in Rosyth, Scotland, that makes inkjet cartridges; and the cutting or transfer of 1,350 positions, including the elimination of 825 jobs.

The actions were expected to save Lexmark $80 million annually.

While Lexmark saw declines in sales of hardware, it saw growth in other business segments. Curlander said the volume of OEM shipments Lexmark made to Dell shot up in 2005 compared with 2004.

"For the year, sales to Dell were $782 million and represented 15 percent of our revenue," Curlander said. "This compares to Dell revenue of $570 million in 2004, which was about 11 percent of our total revenue."

However, Curlander did send a mixed message in this area. He said that Lexmark's OEM business for other vendors was starting to slow.

"OEM has been a strong area of growth for us," Curlander said. "We are now seeing slowing in the OEM arena."

Pressed by financial analysts for more detail as to why the company's hardware sales were sluggish, Curlander said the company was beginning to re-evaluate how it has viewed use models in its installed base.

"We really think the usage pattern over [product] life was different from what we assumed previously," Curlander said. "Whether we always had that wrong or there's been a change is hard to say." He said Lexmark now sees newer products used much more in the early stages after installation, and less over time. That could impact not only hardware sales but also supply sales.

"The answer for this is we need to get our hardware sales moving in terms of units, particularly branded units," Curlander said.