By Mark Green
Lexmark International reported slight revenue growth for the second quarter Monday as the Lexington-based business print services and digital information manager continues its transition out of inkjet printing, formerly a primary line of business.
Lexmark shares were up more than 3 percent at mid afternoon today to $48.40.
Lexmark said revenue for 2Q14 was $892 million, an increase of a half of a percent from the $887 million it took in for the same period in 2013. Lexmark announced in 2012 that it would exit the inkjet printing sector in favor of managed print services and a focus on software sales, which together the company refers to as its “higher value solutions portfolio.” Those areas are, indeed, growing while inkjet revenue dropped 33 percent to $67 million, which is 7 percent of total Lexmark’s revenues.
The company’s general expectations for the economy and its markets are improving, and Lexmark adjusted its official expectations from a 2 to 4 percent decline in the third quarter and the year as a whole upward to “flat to 2 percent decline.”
“That’s really a statement of our confidence, across the globe,” said Paul Rooke, Lexmark chairman and CEO.
“In the second quarter, our higher value solutions portfolio revenue, comprised of Managed Print Services and Perceptive Software, grew 11 percent, accounted for nearly 30 percent of Lexmark’s total revenue and is expected to exceed $1 billion this year,” Rooke said. “This growth is fueled by the disciplined execution of our capital allocation framework, which funds the company’s transformation while concurrently rewarding our shareholders with both a 20 percent dividend increase and share repurchases, returning $41 million this past quarter.
“Our strong second-quarter results reflect the synergies we are creating with our unique imaging and software solutions, which help our customers solve their unstructured information challenges,” Rooke said. “Considering our continued strong performance, we are increasing our full-year 2014 revenue and earnings per share guidance.”
Hardware revenue was $182 million for the quarter, up 7 percent. Supplies revenue was $602 million, down 1 percent, but laser printing supplies did grow 5 percent. The “software and other” revenue category declined 1 percent to $106 million.
Lexmark reported net earnings of $37 million, which is a steep drop from 2013 net earnings of $94 million.
The company said net cash flow, however, was $102 million and that is current cash and marketable securities holdings now total $1 billion, with much of that overseas.
Lexmark is currently attempting to acquire Swedish print and data management software provider ReadSoft. While the ReadSoft board that includes the two largest stockholders endorses the Lexmark offer, there is a competing offer, and Lexmark last week increased its bid to $224 million. Lexmark said last week it already owns 5.3 percent of ReadSoft shares.
Meanwhile, Lexmark is continuing it commitment to return a majority of free cash flow value to shareholder in the form of dividends and stock repurchases. In 2Q14, the company increased its quarterly dividend to $0.36 per share and spent $19 million repurchasing 400,000 shares of Lexmark stock.
During a morning conference call with investors and media, Lexmark executives indicated the company’s guidance for the full year was being increased by 15 cents per share over its official guidance last January. Full-year earnings per share is forecast at $2.27 to $2.47.
Rooke said the improved guidance “reflects good performance (thus far this year) against what we expected.”
The company is satisfied with how its exit from the inkjet printing business is progressing. Inkjet revenue that was at $67 million for the quarter is expected “within a couple of years,” Rooke said, to be under $100 million annually and rapidly approaching zero.
“We think the slope is about right,” he said.
Lexmark reported it gained three significant new healthcare sector customers for its Perceptive Software products in the second quarter: Tulsa-based Saint Francis Health System; England-basedNottingham University Hospitals NHS Trust; and Buffalo, N.Y.-based Catholic Health.