Why Lexmark's Shares Spiked
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of printer and imaging specialist Lexmark (NYS: LXK) were showing off big gains today as the stock rallied as much as 20% in intraday trading.
So what: Collectively, Hewlett-Packard (NYS: HPQ) , Canon (NYS: CAJ) , and Epson control 90% of the inkjet-printer market. So it shouldn't come as a big surprise that as Lexmark looks to improve profitability and further focus in on non-print offerings such as business software, its inkjet business would end up in the cost-cutting crosshairs. The company will be shuttering its inkjet business over the coming few years and cutting 1,700 jobs with the move. Management anticipates cost savings of $95 million per year once the restructuring is done.
Now what: Investors are obviously seeing this as a positive move by Lexmark, and I'm not about to second-guess that view. Of course, it's important to remember that this is the announcement of a plan -- the company still needs to execute the restructuring properly if investors are really going to see that near-$100 million annual savings in the income statement. Further, while cost-cutting can be a near-term solution for improving profitability, investors who are long-term owners of Lexmark will want to keep an eye on what the company is doing to reinvigorate growth and improve the top line as well.
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