Lexmark Sees Q4 Profit Rise But Dampens Forecast

For the quarter ended Dec. 31, the Lexington, Ky.-based printer maker posted a profit of $89.9 million, or 91 cents per share, up from $82.3 million, or 71 cents per share, a year earlier yet just short of Wall Street's projection of 93 cents per share.

Lexmark's 2006 fourth-quarter revenue came in at $1.369 billion, virtually flat compared with $1.365 billion in sales for the year-ago quarter.

"In terms of what we saw in the fourth quarter, we saw some weakness in the channel in both the U.S. and Europe, sales in small and medium business," Lexmark Chairman and CEO Paul Curlander said in a conference call with financial analysts. "I've not seen market data for the quarter. We have seen the total for U.S. distributor sales out. It was the weakest quarter of the year."

Lexmark also gave a subdued outlook for the first quarter, saying declining inkjet and supplies sales and a weak OEM market would weigh on its business. The company projected first-quarter earnings per share of between 90 cents and $1.00. Thomson Financial gave an average analyst estimate of $1.04 per share for Lexmark's first quarter.

Coming off a disappointing year in 2005, Lexmark last year began restructuring and decided to discontinue about 20 percent of its low-end, less-profitable inkjet business. Though Curlander said Lexmark is beginning to see some progress from the restructuring, the company reported that its inkjet business dropped 18 percent during the fourth quarter and that sales of supplies for inkjet printers declined. Lexmark aims to grow its laser business, where hardware units and supplies both have higher margins. That shift is beginning to show success, Curlander said.

"We saw a strong fourth quarter -- stronger than we expected -- in laser supplies," Curlander said. "We think the trend is going in the right direction."

Lexmark also continues to feel the effect of weak business in building printers for third parties. Dell, which has been experiencing significant sales and profit declines, represented about 15 percent of Lexmark's business in the fourth quarter. Lexmark is also an OEM for IBM, which last week announced it was selling its printer business to Ricoh in stages over three years. Curlander declined to answer a question about how the IBM-Ricoh deal might impact Lexmark.