Lexmark (LXK) Soars After Announcing Exit From Printer Business
Shares of printer maker Lexmark International (LXK: Charts, News) closed up +2.61, or +13.73 percent on Tuesday to $21.62 per share, after the company announced it would stop manufacturing inkjet printers and focus its attention on its software and imaging businesses. The company stated that exiting what remained of its inkjet business would save $85 million in expenses next year and $95 million annually when fully implemented in 2015.
In addition to exiting the inkjet business, Lexmark also announced it would repurchase $100 million in stock and as part of the restructuring plan would lay off 1,700 people, including 1,100 manufacturing jobs mostly related to its inkjet printer business. The company plans to fulfill its warranties and continue to support its inkjet customers providing supplies through the company's website. Daily Chart
Lexington, Kentucky based Lexmark International has been struggling with its inkjet division, with inkjet hardware sales off -35 percent, while total printing hardware sales fell -17 percent in the second quarter. The company was forced to cut its 2012 full year forecast due to a 66 percent drop in its inkjet hardware revenue. Lexmark will take a pre-tax charge of $160 million for the restructuring, including $110 million this year and $30 million in 2013 with the remainder to be taken over the next three years. In addition, Lexmark was planning to sell over 1,000 patents it owned related to inkjet technology. After the announcement, Paul Rooke, Lexmark chairman and CEO stated that "Today's announcement represents difficult decisions, which are necessary to drive improved profitability and significant savings, Our investments are focused on higher value imaging and software solutions, and we believe the synergies between imaging and the emerging software elements of our business will continue to drive growth across the organization. As we move forward, we remain confident in our strategy, competitiveness and ability to create value for shareholders." Lexmark has been acquiring other companies to expand its software business buying Perceptive Software in 2010 and more recently having acquired ISYS Search Software, Nolij Corp. and Brainware Inc. In the second quarter, software revenue increased from 2 percent to 5 percent of the company's total revenue. Lexmark is exiting a dying market as consumers move to tablets from desktops and companies have targeted printing in their cost cutting operations, the fact is people are consuming less paper. Competitors such as Hewlett-Packard (HPQ
), Epson Corp. and Cannon Inc. (CAJ
) have all been hit hard by the industry wide slowdown. Lexmark's exiting the inkjet market and move to providing software and managed print services makes sense and will probably continue to favorably affect the company's stock price, which has declined significantly since the beginning of the year. In February, the stock was trading over $37 per share, having reached a low of $16.10 late last month after the company reported second quarter earnings. With the company's recent acquisitions and the restructuring of the company away from inkjet printers, the stock may be finding a base of support. Other News About LXK Lexmark Layoffs Don't Touch Perceptive Software
Layoffs won't affect Lexmark's acquisition. Lexmark's Inkjet Exit Symptomatic of Industry
Article on the industry wide pressure as people print less. Other Stocks in the News United Hit by Outage
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Published on Aug 29, 2012
By Jay Hawk