Lexmark Revenue Drops On Pricing, Weak OEM Sales

Document hardware company Lexmark on Tuesday reported a 1-percent drop in sales for its first quarter compared to the year-ago period, and missed analysts' forecasts by a wide margin. The company said its sales to OEM customers remained weak and its consumer business suffered a double-digit decline in the first quarter of 2007.

It also offered an outlook for the second quarter that was significantly lower than many analysts had been expecting.

The Lexington, Kentucky-based company turned in sales of $1.261 billion, in line with analysts estimates, but earnings of $92.4 million, or 95 cents per share. The average of analysts' forecasts was $1.03 per share, according to Thomson Financial, while Lexmark had earlier said it expected earnings of between 90 cents per share and $1.00 per share for the quarter.

For the year-ago quarter, Lexmark reported sales of $1.275 billion and earnings of $86.2 million.

Paul Curlander, Lexmark's chairman and CEO, described the company's first quarter as "mixed."

"Among the factors affecting our results were some strong positives, some challenges and some investments we believe are necessary to continue to strengthen our competitive position and to position us for longterm growth," Curlander said in a prepared statement. He said that Lexmark's sales of its branded products in color laser printers and MFPs were strong during the quarter, and its core business market sales -- which are largely driven by the channel -- were good as well.

"Challenges included OEM unit sales that continued to be weak, declines in inkjet supplies sales, and hardware pricing that was fairly aggressive in both laser and inkjet markets," Curlander said. He noted the company would continue to make investments in rsearch and development, as well as in its own brand.

Curlander also said aggressive hardware pricing also took a bite out of the company's results.

Lexmark has continued to be hurt by its OEM sales to Dell, the Round Rock, Texas-based direct PC maker, which declined in 2006 as Dell itself slumped. The company has also declined to say how it is being affected by a decision by IBM, another longtime OEM customer, to exit the printer business by transferring its InfoPrint operations to a joint venture with Lexmark rival Ricoh.

In addition to its earnings, Lexmark also announced several new color multi-function products and lower-end wireless printers for the consumer segment.

Looking ahead, Lexmark said it expected its second-quarter earnings to range between 82 cents per share and 92 cents per share. The average of analysts' forecasts had been $1.00, according to Thomson Financial.

Lexmark was expected to explain its operations in greater detail during a morning conference call.