Lexmark trims 2Q outlook for profit

Printer maker Lexmark International Inc. sharply lowered its second-quarter earnings forecast Monday, blaming the decline on sagging consumer inkjet supply sales. The company forecast sluggish earnings continuing into the third quarter.

Another factor cited by the Lexington, Ky.-based company for the suddenly lower-than-expected performance was its aggressive pricing and promotions.

In a conference call with analysts, Lexmark Chairman and Chief Executive Paul J. Curlander reported higher sales for the company's branded printers, but said that "to improve our inkjet supply sales, we need to drive more sales of inkjet units."

The company announced that it expects second-quarter earnings of 64 cents to 69 cents per share, or 62 cents to 67 cents per share excluding restructuring-related benefits. Both estimates include a tax benefit of about 5 cents per share.

Lexmark previously expected to earn 82 cents to 92 cents per share for the quarter.

Revenue is expected to decline about 2 percent from last year's $1.23 billion, suggesting revenue of about $1.2 billion. The estimate remained in line with the company's previous projection of a decline in the low to mid-single digits.

Analysts surveyed by Thomson Financial expect Lexmark to earn, on average, 86 cents per share on revenue of $1.21 billion.

The company plans to announce its second-quarter earnings on July 24.

Following Lexmark's announcement Monday, JPMorgan Chase & Co. analyst Bill Shope said the company faces challenges amid "the pricing environment and Lexmark's smaller scale versus larger rivals."

"With EPS declining dramatically in the near term, we fear the stock may continue to slide," he said.

Goldman Sachs analysts lowered their 2007 and 2008 earnings forecasts for Lexmark, noting that the company is "being squeezed by more aggressive inkjet pricing/promotion on one side and the need to spend heavily on product development and marketing on the other."

Along with declining inkjet supply revenue, the company cited lower average unit printer revenue from aggressive pricing and promotion, and greater-than-expected product costs.

Looking ahead, Curlander said "we expect these same second-quarter factors to impact our third-quarter results."

Lexmark projected third-quarter earnings of break-even to 10 cents per share, compared with the average analyst estimate of 81 cents per share.

Curlander was more upbeat about Lexmark's longer-term outlook, noting new product introductions.

"While these near-term results are clearly disappointing, we continue to focus on the long-term growth and success of the company," he said.

Lexmark shares were down $2.61, or 5.3 percent, in trading Monday afternoon.