Lexmark Halves 3Q Profit Forecast

Lexmark told financial analysts Tuesday it is cutting its third-quarter earnings outlook by more than half, saying that the channel had slashed inventory of the company’s products and that pricing pressure and softer-than-expected sales have taken a toll.

Lexmark Chairman and CEO Paul Curlander said the Lexington, Ky.-based printer vendor now projects a third-quarter profit of between 40 cents and 50 cents per share, less than half the 95 cents to $1.05 per share that analysts had forecast. He said revenue for the quarter was on track to decline by 4 percent or 5 percent year over year.

"As we came into the quarter, clearly our analysis did not tell us. We did not believe we would see this type of shift in channel inventory," Curlander said.

"Obviously, that inventory is not our inventory. We don't make the decisions on that inventory," he added. "It appears channel partners are taking down their inventory due to whatever market trends or business conditions or other priorities they've had during the quarter."

The channel inventory downswing comes at a time when Lexmark is working to build sales of its branded hardware and supplies. Since 2002, the company had been working to build its OEM business.

"We need to drive more sales of branded hardware and work with the channel to make sure they are carrying a comfortable level of inventory," Curlander said.

Lexmark executives said the company’s OEM business, which includes production of printers for Dell, was flat to slightly below expectations for the third quarter. Through the end of last year, Dell was Lexmark's largest OEM customer and accounted for more than 10 percent of Lexmark's overall revenue.

For its part, Dell reported weaker-than-expected sales during its most recent quarter, largely due to more aggressive pricing. Curlander said, however, that Lexmark aims to drive sales of inkjet and laser printers by continuing to be aggressive in pricing, as needed.

Lexmark is scheduled to release its full third-quarter financial results on Oct. 25.