* Supplies sales continued to drive growth in the second quarter
* Lexmark delivered double-digit unit growth in both laser and inkjet shipments
* Cash generation for the second quarter increased to $146 million
* Company repurchased a record $368 million of its shares in the quarter, a record $595 million in the first half
Lexmark International today announced financial results for its second quarter ended 30 June 2005. Second quarter revenue was $1.283 billion compared to $1.248 billion last year, an increase of 3% driven by 9% growth of laser and inkjet supplies revenue. EPS were $0.64 and would have been $1.06, up 4% without the tax cost of $53 million, or $0.42 per share, resulting from the approval to repatriate $684 million during 2005 under the American Jobs Creation Act.
"Despite difficult market conditions that impacted our revenue growth, we grew laser and inkjet units each at a double-digit rate in the second quarter," said Paul J Curlander, Lexmark chairman and chief executive officer. "We also increased our cash generation in the quarter to $146 million which again demonstrates the strength of our business model."
Gross profit margin of 34.6% for the quarter compares to 35.3% last year, down 70 basis points due to lower product margins, somewhat offset by a higher mix of supplies. Operating expenses were 20.9% of revenue, up from 20.4% in the prior year, driven by increased strategic investments in development and marketing. Second quarter operating income margin was 13.7% versus 14.9% in the same quarter last year.
Lexmark repurchased a record $368 million of its common stock during the quarter. The company`s remaining share repurchase authorisation was approximately $307 million at quarter-end. Second quarter net cash provided by operating activities increased to $146 million. Capital expenditures for the quarter were $56 million.
"The distributed printing market presents attractive growth opportunities for Lexmark. In the quarter, we continued our R&D and marketing investments focused on driving the long-term growth of the company. Our objective is to expand our product line to enter and increase our presence in the future growth segments. We are also focused on increasing the awareness of Lexmark, and developing our brand. We started this in 2004, and have continued these initiatives in 2005," said Curlander.
As part of the company`s ongoing optimisation of its expense structure, Lexmark also announced today that it will reduce its workforce by approximately 275 employees through the first half of 2006 with a majority of the affected employees exiting in the third quarter of 2005. This programme is expected to result in pre-tax charges of $26 million. On an annual basis this reduction is expected to make $23 million available to reinvest in the company`s strategic initiatives. The pre-tax charges in the third quarter are expected to be approximately $13 million, with an impact on diluted net earnings per share of approximately 8c.
Lexmark expanding solutions and manufacturing capabilities
In order to drive the long-term growth of the company, Lexmark continued to expand its solutions and manufacturing capabilities around the world during the second quarter.
* Lexmark opened three new Printing and Solutions Showcase centres - Mexico City, New York and Sydney. Each centre provides an environment for customers to experience first-hand how Lexmark can help large enterprise customers from a number of different industries improve their paper-intensive workflow processes. * Lexmark opened its fifth manufacturing facility in the state of Chihuahua, Mexico. This new facility will produce laser toner cartridges and their components used in the company`s laser products. First half financial results
Revenue for the first six months of 2005 was $2.641 billion, an increase of 5% versus $2.504 billion in the same period of 2004. Gross profit margin was 33.8% compared to 34% in the first half of last year. Operating income margin was 12.8% versus 14% in the first half of 2004. EPS were $1.60 for the first half ($2.00 excluding a $0.02 tax benefit in the first quarter, and the $0.42 tax cost in the second quarter). EPS were $1.93 for the same period last year. In the first half of 2005 net cash provided by operating activities reached $224 million, and share repurchases were a record $595 million. Looking forward
Looking forward, the company believes its newly announced products and its continued investments in its strategic initiatives position it well for future growth. However, the company remains cautious due to uncertain market conditions and the potential for aggressive price competition.
In the third quarter of 2005, the company expects a low-single digit year-over-year revenue growth rate. It expects earnings per share of $0.95 to $1.05 excluding the estimated third quarter impact from the workforce reduction. Third quarter 2004 earnings per share were $1.17 ($1.02 excluding a $0.15 benefit from the resolution of income tax matters).
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Lexmark International, Inc makes it easier for businesses and consumers to move information between the digital and paper worlds. Since its inception in 1991, Lexmark has become a leading developer, manufacturer and supplier of printing and imaging solutions for customers in more than 150 countries. Lexmark reported $5.3 billion in revenue in 2004, and can be found on the Internet at www.lexmark.com.
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