Why Lexmark Shares Jumped
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 Lexmark were looking fresh off the press today, gaining as much as 10% after beating top- and bottom-line estimates in its quarterly earnings report.
So what: The printing company and content-management solutions specialist delivered adjusted earnings per share of $0.95, topping expectations by $0.04, while revenues fell 2.7% to $896 million but still came in ahead of the consensus of $871.7 million. Excluding the loss of revenue from its decision to exit some inkjet businesses, sales would have increased 5%. Record Managed Print Services and Perceptive Software were the company's strongest-growing segments, growing at 18% and 38%, respectively, but they make up less than a quarter of overall revenue. Finally, fourth-quarter guidance of $1.07 to $1.17 was in line with estimates at $1.11.
Now what: While this was a solid performance for Lexmark, the company is still facing structural challenges as it derives much of its revenue from printing, a declining industry. Still, with a forward P/E of less than 11, and nearly 100% share price growth in the last year, management seems like it's making the right moves. Analysts see earnings per share declining slightly next year, but I'd expect growth in Record Managed Print Services and Perceptive Software to eventually pick up the slack from the printer divisions.
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