(Editor’s note: The following story uses both GAAP earnings information and non-GAPP information. GAAP is the common set of accounting principles, standards and procedures that companies use to compile financial statements. Companies are required to report GAAP earnings. Many companies report non-GAAP earnings in addition to the required GAAP earnings, because they say the alternate figure more accurately reflects the company’s performance.)
LEXINGTON, Ky. (Oct. 23, 2012) — Lexmark International Inc. reported break-even earnings today for the third quarter. Revenue was $919 million, down 11 percent compared to last year’s third quarter, when revenue was $1.03 billion.
Revenue was higher, however, than analysts’ expectations of $911.6 million.
In the fourth quarter of 2012, the company expects revenue to decline 10 to 12 percent.
Third-quarter gross profit margin was 39.9 percent versus 37.3 percent in 2011, according to the earnings report the company released today. Net earnings were down 13 percent, from $74 million in 2011 to $65 million this year.
Earnings per share (EPS) for the third quarter of 2012 were zero, compared with earnings of 86 cents per share in the third quarter of 2011. Non-GAAP EPS for the third quarter were 94 cents, about flat compared to 95 cents EPS in the third quarter of 2011. In the fourth quarter, non-GAAP EPS are expected to be around 82 to 92 cents, compared with $1.25 in the fourth quarter of 2011.
The company’s non-GAAP EPS also exceeded analysts’ expectations of 78 cents.
Third-quarter operating expense was $316 million compared to $283 million last year, and the operating income margin was 1.3 percent compared to 9.6 percent last year.
The company spent $135 million on share repurchases in the third quarter. In the past 15 months, the company said, it has returned more than $500 million to shareholders through dividends and share repurchases.
In the third quarter, Lexmark had a free cash flow of $95 million.
The company announced its restructuring plans in August, which include phasing out the development and manufacturing of Lexmark’s remaining inkjet hardware. About 1,700 jobs worldwide, or almost 13 percent of Lexmark’s workforce, will be cut, including about 1,100 manufacturing jobs. At least 500 local jobs are expected to be among those cut.
The action is expected to result in annualized savings of $95 million once fully implemented.
The restructuring is the second in less than a year for Lexmark, which said in January it would cut 625 jobs.
“Our third quarter financial results were highlighted by solid free cash flow generation and ongoing growth in Perceptive Software and managed print services revenue,” said Paul Rooke, Lexmark chairman and CEO. “Even with the ongoing economic weakness we are seeing, particularly in Europe, revenue for the quarter was in line with the guidance we provided in July, and non-GAAP EPS were about flat year to year and exceeded that guidance.”
Last week, the company announced several solutions-enabled laser products that “further strengthen our smart multifunction product and managed print services leadership,” Rooke said. “We continue to leverage our investment in the Perceptive Software portfolio in combination with our smart multifunction products to reduce the complexities of manual processes and improve productivity for our customers.”
Lexmark is committed to delivering a long-term operating income margin of 11 to 13 percent, Rooke said, and continues to “maintain capital allocation discipline to deliver shareholder value.”
Other Q3 results
Imaging Solutions and Services (ISS) revenue of $879 million declined 13 percent compared to the same period last year. Within ISS, Managed Print Services (MPS) revenue grew 2 percent, Non-MPS revenue declined 12 percent and Inkjet Exit revenue declined 29 percent year to year. Inkjet Exit revenue represented 16 percent of total revenue and is expected to decline with the company’s decision to exit its remaining inkjet hardware for improved profitability.
Perceptive Software revenue was $41 million. Perceptive Software revenue, excluding acquisition-related adjustments of $2 million, was $43 million and grew 88 percent compared to the same period in 2011.
Lexmark’s focus continues to be on growing workgroup laser hardware and supplies, MPS, and software revenue as inkjet continues to become a less significant portion of the company’s revenue mix.
Hardware revenue and Supplies revenue declined 24 percent and 10 percent, respectively.
Software and Other revenue grew 25 percent, or 28 percent excluding acquisition-related adjustments.
Third quarter GAAP results:
Revenue was $919 million compared to $1.035 billion last year.
Gross profit margin was 35.7 percent versus 36.9 percent in 2011.
Operating expense was $316 million compared to $283 million last year.
Operating income margin was 1.3 percent compared to 9.6 percent in 2011.
Net earnings were $0 million compared to 2011 net earnings of $67 million.
Third quarter non-GAAP results:
Revenue was $921 million compared to $1.035 billion last year.
Gross profit margin was 39.9 percent versus 37.3 percent in 2011.
Operating expense was $269 million compared to $279 million last year.
Operating income margin was 10.7 percent compared to 10.4 percent last year.
Net earnings were $65 million compared to $74 million in 2011.
Company continues with capital allocation plan
Lexmark is continuing to execute on its previously announced capital allocation framework of returning more than 50 percent of free cash flow to shareholders, on average, through quarterly dividends and share repurchases while building and growing its solutions and software business through expansion and acquisitions.
In the third quarter of 2012, Lexmark paid a dividend of $0.30 per share totaling $21 million. The company also repurchased 5.8 million of the company’s shares for $120 million. An additional $15 million was paid during the third quarter to repurchase shares, with the final settlement of these shares expected to occur in the fourth quarter. The company’s remaining share repurchase authorization is currently $251 million.
The company ended the quarter with $859 million in cash and current marketable securities. Net cash provided by operating activities was $133 million. Free cash flow was $95 million. Capital expenditures were $38 million. Depreciation and amortization was $81 million.