Lexington, Ky. – Lexmark’s stock price was down about 20 percent today after its second quarter earnings report showed its revenues down slightly as it continues to transition into a business information company from its origins as a printer manufacturer.
The Lexington, Ky.-based multinational announced restructuring plans in its earning release this morning that it said would increase operational efficiency and profitability, including 500 job cuts worldwide over the next 18 months. The changes are expected to produce $65 million in annual savings on a pre-tax basis.
Chairman and CEO Paul Rooke said in an interview with The Lane Report that only a “nominal” impact on its Lexington headquarters workforce. Restructuring efforts will be “very much focused on the software side,” he said.
Lexmark earlier this year acquired business data capture and processing software provider Kofax Ltd. of California for $1 billion and last year spent $250 million to buy business automation software provider ReadSoft of Sweden. Lexmark’s enterprise software operations are based primarily in Kansas City, the home of Perceptive Software, which it acquired in 2010 for $280 million in a key strategic shift toward providing businesses with solutions for data acquisition, analysis and process management.
Lexmark announced then its intention to leave the inkjet printer business, which had been its main product. It continues to manufacture a wide line of multifunction laser printing devices.
Lexmark International reported 1.5 percent lower revenues of $879 million for the second quarter, which is down from $892 million in 2Q14.
The market took the earnings news badly, falling 20 percent to $37.75 at today’s close.
Rooke, however, said there were “some very bright spots” in the companies 2Q15 report, especially revenue growth in its highest value and most profitable operations. The company upgraded its official guidance for the full year, he noted.
As a multinational, Lexmark is feeling a negative financial impact from the strength of the U.S. dollar, especially versus the euro.
Decreasing foreign currency valuations have created 7 points of negative revenue impact so far this fiscal year, according to Rooke. For the full year, Lexmark expects currency headwinds to push its numbers backwards by 5 percentage points, with the continuing winding down of its inkjet business having a further 4-point impact. These will offset what otherwise would be a 9 percent improvement in business, Rooke said.
“As multinational we have to deal with currency (issues) as it occurs,” he said. The euro has fallen more than 20 percent since the second quarter of 2014. “We’ve been very, very focused on it.”
With a policy of returning at least 50 percent of free cash flow to shareholders, Lexmark has paid dividends for 15 consecutive quarters but said it will pause its share repurchasing for 18 to 24 months as it pays off credit facilities obtained for the Kofax purchase.
Rooke said the company has no near-term plans for additional acquisitions or any significant shift in business strategy. It will focus on executing its present strategy to transform into a data solutions business and on integrating Kofax and ReadSoft into its operations.
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