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Lexmark Q2 net profit slips 16%

Press release from the issuing company

LEXINGTON, Ky., July 24 -- Lexmark International, Inc. today announced financial results for the second quarter of 2007. Second-quarter revenue was $1.208 billion, down 2 percent compared to revenue of $1.229 billion last year. Second-quarter GAAP earnings per share were $0.67. Earnings per share for the second quarter of 2007 would have been $0.65 excluding a net $0.02 per share benefit from restructuring-related activities. Second-quarter 2007 GAAP and non-GAAP earnings per share include a tax benefit of about $0.05 per share. Second-quarter 2006 GAAP earnings per share were $0.74. Earnings per share for the second quarter of 2006 excluding $0.35 per share restructuring-related charges would have been $1.09.
"Although we had a shortfall in our consumer market segment relative to the April 24 guidance, the business market segment performed about as expected. In addition, we had strong branded unit growth in our key focus segments of color laser, laser multifunction products and inkjet all-in-ones, and cash flow for the quarter was good as Lexmark continued to have a strong financial position and balance sheet," said Paul J. Curlander, Lexmark chairman and chief executive officer. "In the consumer segment, our focus going forward will be on improving product cost and price, and on products, customers and countries that drive pages."
Second-quarter 2007 business segment revenue of $734 million grew 3 percent year to year and consumer segment revenue of $474 million declined 8 percent compared to a year ago. Second-quarter 2007 gross profit margin was 30.6 percent, the operating expense to revenue ratio was 25.2 percent, the operating income margin was 5.4 percent, and net earnings were $64 million. In connection with the company's 2006 restructuring-related actions, second- quarter 2007 operating income includes $5 million pretax charges, and other income includes an $8 million foreign exchange pretax gain realized upon the substantial liquidation of the company's Scotland legal entity.
Second-quarter 2006 gross profit margin was 34.0 percent, the operating expense to revenue ratio was 25.6 percent, the operating income margin was 8.4 percent, and net earnings were $77 million. Second-quarter 2006 results include $53 million restructuring-related pretax charges.
On a non-GAAP basis, excluding second-quarter restructuring-related charges:
- Second-quarter 2007 gross profit margin would have been 31.0 percent, down 4.3 percentage points from 35.3 percent in the same period last year, principally due to lower product margins.
- Second-quarter 2007 operating expense as a percentage of revenue would have been 25.2 percent, up 2.6 percentage points from 22.6 percent in the same quarter last year, driven by increased demand generation and product development investments.
- Second-quarter 2007 operating income margin would have been 5.9 percent, down 6.9 percentage points from 12.8 percent last year, primarily reflecting a significant decline in consumer segment operating income.
- Second-quarter 2007 net earnings would have been $62 million compared to $114 million in the second quarter of 2006.
Second-quarter net cash provided by operating activities was $124 million. Capital expenditures for the quarter were $43 million. Lexmark did not repurchase its stock during the second quarter. The company's remaining share repurchase authorization was approximately $295 million at quarter end. The company ended the quarter with $527 million in cash and marketable securities.
Looking Forward
In the third quarter of 2007, the company expects revenue to be down in the low- to mid-single digit percentage range year over year. It expects third-quarter 2007 GAAP EPS to be in the range of $0.00 to $0.10 per share. EPS in the third quarter of 2006 were $0.85, or $0.95 excluding $0.10 per share restructuring-related charges.