Bloomberg News

Lexmark Surges on Plans to Cut Jobs, Explore Inkjet Sale

August 28, 2012

Lexmark to Cut 1,700 Jobs, Explore Sale of Inkjet Technology

Lexmark will also reduce positions in research and development, supply chain and support functions. Photographer: Daniel Acker/Bloomberg

Lexmark International Inc. (LXK:US), a U.S. printer maker, rose the most in more than a year after announcing plans to eliminate about 13 percent of its workforce and explore a sale of its inkjet technology.

Lexmark gained 14 percent to $21.62 at the close in New York, for the biggest increase since July 2011. The shares have dropped 35 percent this year.

Demand for Lexmark’s printers has slowed as more consumers choose to view documents on mobile devices, forcing the company to shift its focus to higher-end corporate business and services. Selling assets and laying off workers may make Lexmark an attractive takeover target for companies such as Xerox Corp. (XRX:US) or Dell Inc. (DELL:US), said Federico De Silva, an analyst at Gartner Inc.

“It looks like they’re packaging themselves for some sort of acquisition,” De Silva said in an interview. “They keep getting smaller and smaller.”

Purchasing Lexmark would give Xerox access to more customers it transitions to services and high-end printing, De Silva said. Dell already sources laser units from Lexmark, making it another potential buyer, he said.

David Frink, a spokesman for Round Rock, Texas-based Dell, said the company doesn’t comment on speculation. Kenneth Ericson, a spokesman for Norwalk, Connecticut-based Xerox, and Jerry Grasso, a Lexmark spokesman, both declined to comment.

Xerox is a less likely bidder because it already is strong in printing and is trying to expand in other areas, said Keith Kmetz, an analyst at Framingham, Massachusetts-based researcher IDC.

Manufacturing Jobs

Lexmark will close inkjet manufacturing facilities in Cebu, Phillipines, by the end of 2015, the Lexington, Kentucky-based company said in a statement today. Lexmark will cut 1,700 jobs, including 1,100 manufacturing positions. Reductions will also occur in research and development, supply chain and support functions. The company had approximately 13,300 employees as of Dec. 31, according to a regulatory filing.

Restructuring will cost Lexmark $160 million, with $110 million of that this year, the company said. Cash flow will be reduced by $75 million, with a $40 million impact in 2012.The reorganization will generate annual savings of $95 million beginning in 2015.

“Today’s announcement represents difficult decisions, which are necessary to drive improved profitability,” Lexmark Chief Executive Officer Paul Rooke said in the statement. “Our investments are focused on higher value imaging and software solutions.”

Forecast Cuts

Lexmark, along with printer makers Canon Inc. (7751) and Xerox, cut earnings forecasts this year, citing weaker office equipment sales in Europe. Rooke said last month that the company plans to expand its management services and software business to help overcome the economic slump in Europe.

Lexmark’s operating income margin excluding some items will be 11 percent to 13 percent over the long term, the company said today on a conference call. Last month, the company reported a second-quarter margin of 10.1 percent, down from 14.2 percent in the same period a year earlier.

Separately, Lexmark said today it will buy back an additional $100 million in its own shares, and that the board has authorized a potential $251 million in future repurchases.

To contact the reporters on this story: Amy Thomson in London at athomson6@bloomberg.net; Sarah Frier in New York at sfrier1@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net; Tom Giles at tgiles5@bloomberg.net


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Companies Mentioned

  • LXK
    (Lexmark International Inc)
    • $49.0 USD
    • 0.43
    • 0.88%
  • XRX
    (Xerox Corp)
    • $12.4 USD
    • -0.07
    • -0.56%
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