Lexmark Tops Ests, Outlook Positive

Lexmark’s (LXK) third-quarter earnings exceeded the Zacks Consensus Estimate by 20 cents and revenues by 6.7%.
 
Revenues of $958 million increased 6% on a sequential basis, but declined 15.3% compared to the year-ago quarter. Strong customer demand was responsible for the sequential improvement in revenue, which also exceeded the company’s expectation of a revenue decline in the recently concluded quarter.
 
Printing Solutions and Services Division revenues came in at $654 million, up 5% sequentially, but down 14.0% on a year-over-year basis. Imaging Solutions Division revenues was $304.0 million, up 8.0% on a sequential basis, but down 18.0% compared to the year-ago quarter.
 
Gross profit margin was 32.7% almost flat compared to 32.5% reported in the year ago quarter. On a non-GAAP basis, the company generated a gross margin of 33.9% compared to 34.1% reported in the year-ago quarter. Operating margin stood at 2.5% (including $51.0 million in pre-tax restructuring charges) compared to an operating margin of 4.8% (including $25.0 million in pre-tax restructuring charges) reported in the year-ago quarter. Excluding special items, on a non-GAAP basis, third quarter operating margin stood at 7.8%, compared to 6.8% in the year-ago quarter. GAAP Operating margin declined as revenues fell at a higher rate compared to operating expenses.
 
Net income on a GAAP basis was $10.0 million or $0.13 per share, compared to net income of $36.6 million or $0.42 per share in the year-ago quarter. Excluding special items like restructuring related charges and project costs, non-GAAP net income for the quarter was $51.0 million or $0.65 per share, compared to $55.0 million or $0.63 per share in the year-ago quarter.
 
Lexmark ended the quarter with $908.8 million of cash, cash equivalent and marketable securities, up from $810.2 reported in the previous quarter. The company’s long-term balance remained at the same level of $648.9 million, as reported in the previous quarter. The company generated $147.0 million cash from operations, up from $84.0 million reported in the previous quarter, of which $51 million was spent on capex.
 
Management expects fourth quarter revenues to be up slightly from the last quarter, with the GAAP EPS in the range of 11 cents to 21 cents. Excluding special items, the company expects a non-GAAP EPS of 50 cents to 60 cents.

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