Lexmark Rethinks Biz Plan After Disappointing 4Q

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.

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

The company&'s revenue for the fourth quarter of 2005 was $1.37 billion, a decline from $1.54 billion for the year-earlier quarter.

“Currently, these operating results are not reflective of where we want to be,” said Lexmark Chairman and CEO Paul Curlander in a conference call with financial analysts. As a result, the company said it would be shutting down a manufacturing plant in Scotland, cutting 825 jobs and reassigning almost 500 more.

While Lexmark saw declines in sales of hardware, it saw growth in other business segments.

Curlander said the volume of Lexmark&'s OEM shipments 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,” he said. “This compares with Dell revenue of $570 million in 2004, which was about 11 percent of our total revenue.”

However, even Lexmark&'s OEM business has begun to slow, Curlander said. Pressed by financial analysts for more details as to why the company&'s hardware sales were sluggish, Curlander said Lexmark 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 often in the early stages after installation and used much 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 [Lexmark-]branded units,” Curlander said.

While Lexmark has been excoriated by many in the channel for its relationship with rival Dell, others had more encouraging remarks for the company.

“Our Lexmark business is increasing—at least it has been for the past year or so,” said Joe Taylor, president of Taylor Technology, a Feasterville, Pa.-based solution provider. “Primarily for us, [the sales driver has been] black-and-white laser printers. It used to be that people would ask for HP. Now they are leaning toward Lexmark.”

Among other things, Lexmark last year undertook steps to improve margins for its dealers and provide additional opportunities in service and consulting—as did rivals Xerox and Hewlett-Packard, among others.