Lexmark Profit Rises; Forecast Disappoints

Lexmark International Inc. (LXK) reported a sharp rise in quarterly earnings on Monday on strong sales of printers and ink cartridges, but its forecast disappointed investors, sending its shares down 6 percent.

Analysts said the company's third-quarter outlook was not as aggressive as some observers had hoped.

"People were expecting a strong quarter this time and were hoping that they would guide above (third-quarter estimates), and they didn't," said analyst Shannon Cross of Cross Research.

A moderate rise in Lexmark's inventories and concern about Hewlett-Packard's soon-to-be-announced new product lineup also weighed on the stock, analysts said.

Lexington, Kentucky-based Lexmark, second in the printer market after Hewlett-Packard Co. (HPQ), posted second-quarter net earnings of $136.6 million, or $1.02 a share, up 35 percent from $101.7 million, or 77 cents a share, a year earlier.

Revenue rose 11 percent to $1.25 billion from $1.12 billion.

Wall Street analysts on average were expecting 97 cents a share on revenue of $1.27 billion, according to Reuters Estimates.

Lexmark said new products, including machines that fax, scan and copy as well as print, boosted profits. Analysts also cited solid sales of Lexmark products that are sold through computer maker Dell Inc. (DELL).

Lexmark forecast third-quarter revenue growth at a rate in the high single digits to low double digits, and earnings of 90 cents to $1 a share, up from 79 cents a share a year earlier.

Analysts' average forecast is 97 cents a share.

On a conference call with analysts, Lexmark Chairman and Chief Executive Paul Curlander said the company's increased inventory was a manageable situation, with the back-to-school and holiday seasons — when demand is highest — still ahead.

"This is not a (year) 2001 situation, where we were sitting with a huge amount of end-of-life inventory," he said. "We are really just at the start of the ink jet selling season for 2004.

Shares of Lexmark were down $5.82, or 6.4 percent, to $84.56 in morning trade on the Nasdaq stock market, their lowest level since March.