Thursday, July 24, 2008

Lexmark, Xerox -- earnings reports a mixed bag

Following this week's earnings announcements, the stock prices of Lexmark International (NYSE LXK) and Xerox (NYSE XRX) are heading in opposite directions.

Near the end of today's (Thursday July 24) markets, the shares of LXK are near a six-week high, up for the second day in a row and trading at over $36 and within striking distance of 2008's closing high of $37.68, achieved on February 1st. While a far cry from its early 2007 range in the $60's and even briefly the $70's, the stock is up an impressive 20% in just ten days, when it seemed all was despair and the stock closed at $30.28. This in light of what looks like what will be a $200+ loss day in the DJIA. Tuesday, LXK announced a year-over-year quarterly revenue decline of 6% but a quarterly profit increase of 30% ($83.7 million, or 89 cents a share, versus $64.2 million, or 67 cents) that exceeded Wall Street expectations. The results are a reflection of the execution of their previously announced strategy of de-emphasizing the lower-end and lower-profit inkjet business and stressing higher-end products for business customers.

From Xerox (NYSE XRX), shares are down today, following this morning's pre-market announcement of higher revenues (+8%) but lower earnings (-19%). Trading nearing the day's close is at about $13.25 a share, a 5% decline against Wednesday's close. Interestingly, The Wall Street Journal's morning summary concludes:

Gross margin decreased 1.1 percentage points to 39.2%, primarily due to the effect of more revenue coming from services and developing markets, the company said.

Xerox projected third-quarter earnings of 28 cents to 30 cents a share. Xerox also reiterated its full-year earnings forecast of $1.26 to $1.30 a share.

Xerox -- which has a large market share in digital industrial printing and a long history of selling big printers along with professional services -- is expected to face fresh competition now that rival Hewlett-Packard Co. is offering these services. H-P, moving engineering and marketing resources away from smaller printers, has been looking for growth in new areas, including large-scale commercial printing and photo processing.

While the threat across a range of businesses from HP (NYSE HPQ) doesn't come as a surprise, it's interesting that the services business is blamed (partly anyway) for declining gross margins, as they are typically considered the richer part of the mix.

1 comment:

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