Lexmark says new deals to cushion revenue fall from inkjet exit

Reuters News
Posted: Jul 23, 2013 12:42 PM

By Sruthi Ramakrishnan

(Reuters) - Printer maker Lexmark International Inc <LXK.N> reported better-than-expected quarterly results and said revenue would fall less than anticipated in 2013 due to big contract wins in services and software, sending its shares up 11.5 percent.

The company, which exited its inkjet printer business in August to focus on the more lucrative software and services, said it now expected full-year revenue to fall 6 to 7 percent. It had earlier forecast an 8 to 10 percent decline.

New contracts in the managed print services (MPS) business this year, with an average value of $50 million, will cushion the impact of a fall in revenue, Chief Executive Paul Rooke told Reuters. The deal wins include brewer Anheuser Busch <ABI.BR>.

The revenue share from the inkjet business is expected to be less than 10 percent by the end of the year, Chief Financial Officer John Gamble said on a conference call. The business contributed 21 percent of revenue in 2011.

Lexmark has stopped production of its inkjet printers, but continues to supply ink and support existing printers. It sold its inkjet-related technology and assets to Japan-based Funai Electric Company <6839.T> for about $100 million in April.

The company said it expected its Perceptive software business, which includes business process management and medical imaging software, and MPS to grow at a combined rate of about 15 percent this year.

However, Lexmark said the spending environment was still sluggish and the company was beginning to see the impact of government sequestration.

"We're still seeing hardware deferrals, some cases some rollout deferrals just as companies are pruning their budgets and prioritizing their budgets," Rooke said on a conference call with analysts.

Lexmark forecast third-quarter adjusted earnings of 85 cents-95 cents per share. Analysts were expecting earnings of 94 cents per share.

The company said it expected revenue to fall 4 to 6 percent.


Revenue from the company's Perceptive software business rose 34 percent to $59 million in the second quarter, as it closed several large enterprise licensing deals, Rooke said.

The business also benefited from cost cuts, which are expected to help the company in the second half as well, he said. The cost reductions included personnel and non-personnel actions, Rooke said.

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The Perceptive software business accounted for 6.6 percent of total revenue in the second quarter, with the rest coming from its imaging division consisting of laser printers, software and managed print services business.

April-June revenue fell 3.4 percent to $887 million.

Net income rose to $88.9 million, or $1.39 per share, from $39.2 million, or 55 cents per share, a year earlier.

Excluding items, the company earned 95 cents per share.

Analysts on average had expected earnings of 88 cents per share on revenue of $859 million, according to Thomson Reuters I/B/E/S.

Lexmark shares touched a 17-month high of $38.53 in morning trading on the New York Stock Exchange on Tuesday. They later eased their gains to trade up 10 percent at $38.08.

(Editing by Joyjeet Das and Don Sebastian)