Why Lexmark's Shares Spiked

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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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The article Why Lexmark's Shares Spiked originally appeared on Fool.com.

Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.Fool contributorMatt Koppenhefferhas no financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting hisCAPS portfolio, or you can follow Matt on Twitter,@KoppTheFool, or onFacebook. The Fool'sdisclosure policyprefers dividends over a sharp stick in the eye.

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