February 2, 2010 / 7:00 PM / in 8 years

Lexmark profit exceeds estimates, shares jump

NEW YORK (Reuters) - Lexmark International Inc LXK.N reported a higher-than-expected rise in quarterly profit, helped by cost-cuts and improving demand for printers and ink, lifting the shares over 11 percent.

Lexmark, which competes with Hewlett-Packard Co (HPQ.N), Canon Inc (7751.T) and Samsung Electronics Co Ltd (005930.KS), said customers began spending more in the fourth quarter.

“Our fourth-quarter financial results were significantly better than anticipated, reflecting strong sequential improvement for both hardware and supplies,” Chief Executive Paul Curlander told analysts on a conference call on Tuesday.

Quarterly profit rose to $59.8 million, or 76 cents a share, compared with $18.1 million, or 23 cents a share, in the year-earlier quarter.

Profit excluding items was $1.16 a share, above the average analyst forecast of 62 cents.

Fourth-quarter revenue fell 1 percent from a year earlier to $1.07 billion but was up 12 percent from the third quarter and higher than the average analyst estimate for $988.97 million, according to Thomson Reuters I/B/E/S.

Revenue from its printing and services division rose 4 percent from a year earlier to $748 million. The company said it was also seeing traction in its new laser-based products. It has been introducing higher-end models to improve profitability.

    The company forecast first-quarter revenue to be up slightly year-on-year, with earnings excluding items of 80 to 90 cents a share. Wall Street had expected 61 cents a share.

    “We believe the magnitude of the beat and the solid guidance should help propel Lexmark’s shares higher, warranting a valuation well into the mid $30s,” said Barclays Capital analyst Ben Reitzes, raising his target price on Lexmark shares to $39 from a previous $34 target.

    The shares, which had languished over the past three months on cautious views of the economy, rose 11.3 percent to $29.84.

    Analysts were also impressed by the improvement in fourth-quarter gross margins, which rose to 36.9 percent from 30.4 percent a year earlier thanks to cost cuts. Shannon Cross, an analyst at Cross Research, had expected 32.0 percent.

    Reitzes raised his outlook on profit excluding items for 2010 to $3.26 per share from a previous view of $2.80, and full-year revenue of $3.93 billion instead of a previous $3.88 billion forecast.

    Additional reporting by Franklin Paul; Editing by Gerald E. McCormick, Dave Zimmerman

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