Xerox, Lexmark Top Wall Street's Earnings Forecasts

Buoyed by a more profitable product mix, Lexmark on Tuesday posted a second-quarter profit that beat Wall Street's expectations. The Lexington, Ky.-based maker of printers and multifunction devices, had revenue of $1.23 billion and earnings of $76.7 million, or $1.07 per share, before charges. Thomson First Call's average analyst estimate was for Lexmark to turn in earnings of 83 cents per share on $1.22 billion in sales.

"This was a pretty good quarter for Lexmark," Lexmark CEO Paul Curlander said in a conference call with financial analysts.

A key factor was Lexmark's decision to place less emphasis on low-end, single-function inkjet printers earmarked for consumers at retail, since that product line had a low and declining margin. Also fueling Lexmark's earnings in the quarter was continued growth in its laser printer and all-in-one device businesses.

Lexmark reported sluggish OEM sales of printers and multifunction devices to other vendors. Dell has been Lexmark's largest OEM customer and last week warned Wall Street that its earnings wouldn't meet earlier guidance.

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Stamford, Conn.-based Xerox, meanwhile, said it topped Wall Street's expectations for profit and revenue.

Xerox reported earnings of $260 million, or 26 cents per share, on revenue of $4 billion, compared with the average analyst estimate of 23 cents per share in earnings and sales of $3.95 billion. The company's profit dropped 40 percent from the year-ago quarter, when it saw benefits from one-time tax settlement.

"Our performance was solid this quarter," Xerox CEO Anne Mulcahy said in a conference call with analysts. She said the company's results were "aligned with our business model," including a 41 percent gross profit margin.

During the quarter, Xerox saw a 14 percent sales gain in color-based products, which now make up 34 percent of the company's total equipment sales. In sales of office products, Xerox saw 5 percent growth in monochrome multifunction devices, 10 percent growth in color multifunction devices and 1 percent growth in color printers. Xerox's shipment of high-end, color production units jumped by 95 percent.

Both Curlander and Mulcahy indicated that the market's pricing remained consistent during the second quarter.

Asked about the potential impact of an economic slowdown on Xerox's business or a decline in enterprise buying, Mulcahy said she hasn't seen any evidence of that.

"At this point, I don't think we would point to the overall macro-economic factors and say they are an inhibitor to our overall progress," Mulcahy said.