By
Seth Jayson
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July 19, 2004
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The tech world's No. 2 printer maker, Lexmark International (NYSE: LXK ) , saw its shares take a bit of a nosedive this morning, 5% or so, following its announcement of yet another quarter of double-digit revenue and earnings growth.
Revenues came in at $1.25 billion, an 11% increase, and the bottom line shows $1.02 per share, a 32% advance. Earnings outran revenues based on solid improvements in operations. Gross margins were up 1.3%, while operating expenses dropped 1.7% in relation to net revenues.
Sound pretty good? Sure it does, but remember that in the game of earnings release bingo, it's what gets buried at the bottom, or excluded altogether, that can make a big difference.
For instance, the latest release doesn't say much about inventories. Maybe that's because they're growing more quickly than sales. Comparing this year's inventories with the prior-year quarter shows a 30% increase -- almost three times the revenue gain. Comparing with the last quarter, we see a 16% rise. (In terms of inventory turns, that's 1.6 this quarter, compared with 1.9 last quarter and 1.9 in the prior-year quarter.) Remember, Intel (Nasdaq: INTC ) was spanked mightily last week for a slimmer, 15% inventory bloat.
The bottom line on Lexmark, the company, looks fine. The balance sheets are strong, and there's plenty of free cash flow. But with the lighter growth predicted by management in its guidance, and that looming inventory, and management warnings on "aggressive price competition," investors might wonder what's going to happen to margins going forward. And if margins get pinched, what will happen to the consistent EPS growth that investors are banking on?
Lexmark has had a red-hot year, but it looks like it's time for investors to cool their passions for the printer pro.
Fool contributor Seth Jayson has no position in any company mentioned. View his Fool profile here.
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