UPDATE 4-Lexmark's Q2 forecast misses, shares plunge

Tue Apr 26, 2011 1:54pm EDT

* Q1 adjusted EPS $1.14 vs. Street estimate of $1.25

* Q2 profit outlook short of of Wall St expectations

* Lowers Q2 revenue forecast

* Shares fall nearly 14 pct (Adds investor comments, updates share price)

By Liana B. Baker

NEW YORK, April 26 (Reuters) - Printer maker Lexmark International Inc (LXK.N) issued a second-quarter forecast that missed Wall Street expectations and its shares tumbled nearly 14 percent.

While the entire printer business is shrinking as offices print fewer pages, Lexmark on Tuesday reported a decrease in profit that outpaced industry declines, signaling it may be losing out to rivals such as Canon (7739.T) and Samsung (005930.KS).

Susquehanna Financial Group analyst Jeffrey Fidacaro said Lexmark was particularly vulnerable in the low-end laser printer business.

"It's going to be challenging for them to show revenue growth," he said.

The company said it expects revenue to decline by low single digits in the second quarter, a reversal of its previous guidance, which called for growth. Its profit forecast of $1.00 to $1.10 per share also fell short of the $1.15 per share that analysts were expecting on average, according to Thomson-Reuters I/B/E/S.

Henry Schacht, a portfolio manager with Schacht Value Investors who owns Lexmark shares, said the results underscore the fierce competition in the printer market but added that the company's financials are still attractive in the long term.

"Their balance sheet is pristine and the stock is undervalued considering the company is sitting on some $1.3 billion in cash and securities," Schacht said, adding that he purchased more Lexmark shares on Tuesday.

Analysts called Lexmark's forecast disappointing and said the company must clarify its growth strategy at its upcoming analyst day in New York in May.

"Clearly their business model is under pressure. They changed their revenue guidance and saw weakness across the board," said Cross Research analyst Shannon Cross.

Lexmark's top executive brushed off concerns about the company's future and pointed to the company's growth in areas such as software and managed print services.

"While on the surface, the numbers were less than what we expected, we saw good growth in strategic areas. It was just that were masked by declines in low-end business and legacy supplies," Lexmark Chief Executive Paul Rooke told Reuters in an interview.

Rooke said revenue has been hurt by higher costs for transportation, shipping and distribution -- which he described as short-term problems that the company is working to fix.

Lexmark said first-quarter net income fell to $1.04 per share, from $1.20 per share a year earlier. On an adjusted basis, the company earned $1.14 a share, which missed analysts' expectations of $1.25.

Revenue decreased to $1.03 billion, compared with analysts' estimates of $1.05 billion.

Lexmark shares were down 13.78 percent to $33.02 in afternoon trading on the New York Stock Exchange. (Editing by Gerald E. McCormick, Dave Zimmerman, Tim Dobbyn and Steve Orlofsky)

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