Lexmark plummets on warning of weak demand

Lexmark International, the US computer-printer maker, lost more than a quarter of its stock-market value on Tuesday after it warned slowing demand and aggressive price cuts in its markets would mean lower sales and profits in its second half.

Lexmark more than halved its earnings forecast for the third quarter from $0.95-$1.05 to $0.40-$0.50 per share. It expected revenues to shrink 4 to 5 per cent year-on-year after predicting low single-digit growth previously.

For the fourth quarter, it expected sales and profits to be “significantly below the current average of analysts’ expectations”. The analyst consensus for the December quarter has been for earnings of $1.17 per share.

Analysts at Goldman Sachs said the news reinforced their thinking that the printer industry was in a more dangerous phase marked by slower growth and greater competition.

“Lexmark is clearly in the worst position among the major vendors,” they said. with Hewlett-Packard faring better, Canon’s business holding up well in the US and Europe and Epson gaining momentum in the US.

Lexmark has suffered from price-cutting by HP on printers and supplies. In addition, it is being squeezed by its biggest customer Dell, which has also been slashing the prices of printers it sells.

More than other major printer manufacturers, Lexmark sells its printer hardware cheaply and profits from the ongoing sale of laser and inkjet supplies. It said lower sales of these products was the main reason for the revenue shortfall.and blamed a reduction in channel inventories and lower end-user demand.

Lexmark shares traded 26 per cent lower at $45.25 in midday trading in New York.

The Lexington, Kentucky company Lexmark had already lowered revenue and profits expectations when it reported second-quarter results in July.