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Lexmark International Inc. (LXK - Analyst Report) is set to report second-quarter 2014 results on Jul 22. Last quarter, the company posted a positive earnings surprise of 5.75%. Let’s see how things are shaping up for this announcement.

Factors This Past Quarter

Lexmark’s first-quarter results were better than expected with both the top and bottom lines beating the Zacks Consensus Estimate. However, both revenues and earnings declined on a year-over-year basis. Lexmark witnessed strong revenue growth in its Managed Print Services (MPS) and Perceptive Software businesses. Nonetheless, decline in hardware revenues marred the top-line performance to some extent.

Although exit from the Inkjet business will impact its top line, Lexmark’s transition from a low-margin printer sales business model to high-margin process management software services, Managed Print Services (MPS) and Perceptive bodes well. Lexmark is doing really well in the MPS market and is winning deals continuously.

Moreover, its laser printing hardware and multifunction peripheral (MFP) printer businesses have yielded positive results. Lexmark’s recent bid for ReadSoft also bodes well as it will strengthen its position in the European business process management market. With more than 12,000 customers in diversified sectors and operations in 71 countries, ReadSoft provides Lexmark the perfect footing to expand its business process solutions business.

Nonetheless, constant pricing pressure from competitors such as Canon Inc., Xerox Corp. and Hewlett-Packard (HPQ - Analyst Report) coupled with tepid demand scenario for traditional printing hardware remains the headwind for the company.

Earnings Whispers?

Our proven model does not conclusively show that Lexmark will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 92 cents. Hence, the difference is 0.00%.

Zacks Rank: Lexmark’s Zacks Rank #3 (Hold) which when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

A couple of stocks that you may want to consider which according to our model have the right combination of elements to post an earnings beat this quarter are:

F5 Networks, Inc. (FFIV - Snapshot Report), with an Earnings ESP of +3.81% and a Zacks Rank #2 (Buy).

Western Digital Corporation (WDC - Analyst Report), with an Earnings ESP of +4.02% and a Zacks Rank #2.

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