Lexmark Reports Solid 3Q Results, Will Restructure to Strengthen Position
Tuesday, October 23, 2001
LEXINGTON, Ky.--Oct. 22, 2001--Lexmark International, Inc. today announced financial results for the third quarter of 2001. Third quarter revenue was $1.004 billion, up 8 percent (9 percent in constant currency) from the same period in 2000. Diluted net earnings per share were 52 cents compared to 50 cents reported a year ago. "We are pleased to deliver third-quarter financial results in line with our previous guidance - especially given the further deterioration in the worldwide economy,'' said Paul J. Curlander, chairman and CEO. "Lexmark's supplies-driven business model has enabled us to increase sales and profits during a year that has been particularly challenging for many technology companies.'' Lexmark also announced that a restructuring plan is being developed which will include a reduction in its global workforce of up to 12 percent. This plan will result in fourth-quarter 2001 pre-tax charges of $100-120 million, with an impact on diluted net earnings per share of 54 to 65 cents. Annual savings from the restructuring should approximate $50-60 million, with about $35-45 million being achieved in 2002. "These difficult steps are necessary to intensify our focus on being the low-cost producer in the industry. They will also help us to make the required investment in research and development, and to continue gaining share in both the laser and inkjet markets,'' Curlander added. Third-quarter review: Printers and associated supplies revenue up 13 percent in constant currency Revenue for the quarter ended Sept. 30 was $1.004 billion, an increase of 8 percent versus $927 million in the same period of 2000. Revenue growth would have been 9 percent versus last year without the negative impact of foreign currency translation. Printers and associated supplies revenue was up 11 percent from a year earlier, and would have grown 13 percent if not for the negative currency impact. Gross profit margin was 30.9 percent for the quarter, down 1.0 point from 31.9 percent a year ago due to lower margins on printer hardware, somewhat offset by a favorable mix shift to supplies. Operating expense was $209 million versus $197 million for the same period of 2000. Operating income was up 3 percent to $101 million, versus the $98 million reported a year ago. Net earnings for the quarter were $70 million, or 52 cents per share on a diluted basis, an earnings per share increase of 5 percent versus net earnings of $66 million, or 50 cents per share in the third quarter of 2000. Lexmark's debt-to-total-capital ratio at Sept. 30, 2001 was 21 percent, up slightly from June 30, 2001. Capital expenditures were $53 million in the third quarter. New All-In-One introduced During the quarter, the company launched the X63 All-In-One Office Center, rounding out its recently announced line of multifunction products, which includes the highly successful X83 and X73. This sub-$200 device prints black text faster than any machine in its class and features high-quality color scanning and stand-alone fax and copy capabilities. "Like our desktop inkjet printers before them, Lexmark's new All-In-Ones have redefined the category, resulting in significant market share gains this year,'' said Curlander. Nine-month highlights: 16 percent constant currency revenue growth in printers and associated supplies Revenue for the nine months ended Sept. 30, 2001 was $2.991 billion, an increase of 10 percent versus $2.711 billion in the same period of 2000. Without the negative impact of foreign currency translation, revenue growth would have been 13 percent versus last year. Nine-month revenue from printers and associated supplies increased 13 percent from a year ago and would have grown 16 percent if not for the negative currency impact. Operating income was $341 million, an increase of 2 percent over the $333 million reported for the first nine months of 2000. Net earnings for the period were $237 million, or $1.77 per share on a diluted basis, an earnings per share increase of 4 percent versus earnings of $230 million, or $1.71 per share in the first nine months of 2000. Looking forward: "As we move into the fourth quarter, we see the market continuing to weaken and expect to see some shrinkage in channel inventory,'' Curlander stated. "Although we do expect a sequential revenue increase in the fourth quarter due to seasonality, we believe revenue may be about flat on a year-to-year basis. We expect gross margin to decline in the fourth quarter due to a higher mix of hardware versus supplies and somewhat lower supplies margins resulting from the increased unit cost from reduced production. Considering all of these factors, we expect fourth quarter earnings per share to be in the range of 40 to 50 cents, before the restructuring and related charges.'' The company expects to record the restructuring and related charges in the fourth quarter. The restructuring plan will provide for a reduction in infrastructure and overhead expenses, a reduction in capacity for certain inkjet printers, and the closure of an electronic card facility in Reynosa, Mexico. Included in the proposed restructuring plan is the separation of up to 1,600 employees, associated pension costs, and other related expenses. "Lexmark employees around the world have been instrumental to the success that the company has achieved,'' Curlander noted. "We sincerely regret that a reduction in jobs is necessary in order to maintain our cost competitiveness. As we reduce inventories, lower our operating expense infrastructure, and continue our strong investment in new products and technology, we will enhance our competitive position and be better prepared for growth when market demand improves.''