Before you click the print icon on your computer screen again, you may want to check the serial number of your printer. Lexmark (NYSE: LXK), a leading manufacturer of laser and ink-jet printers, announced yesterday a voluntary recall of nearly 40,000 printers over a possible short circuit. According to Lexmark, several models released this summer may have a circuit defect, and "in the unlikely event of a multiple component failure, the printer could present an electrical shock hazard."
Though there have been no reported injuries, Lexmark, in cooperation with the United States Consumer Product Safety Commission, voluntarily decided to proactively replace any potentially defective printers. A list of the models that are subject to the recall, some of which are marketed under the IBM (NYSE: IBM) and Dell (NYSE: DELL) brand names, can be found in the safety recall notice.
Though the short-circuit concerns could have created an embarrassing public relations blunder, Lexmark has acted quickly and responsibly to correct the problem. Replacement costs for the printers, which were manufactured in China, will be included in the firm's third-quarter results due out in October.
Though still small alongside rivals such as Hewlett-Packard (NYSE: HPQ) and Canon (NYSE: CAJ), Lexmark has grown steadily. Revenues grew 11% to $1.2 billion, and earnings jumped 32% to $1.02 last quarter, the fourth consecutive period of double-digit advances for both measures.
Printer companies have been capitalizing on a trend that camera manufacturers first learned long ago. The real money is not in the camera, but in the film, or in this case toner and ink cartridges. Lexmark has consistently sold cutting-edge printers at rock-bottom prices -- below cost in some instances -- to build an established base that would feed on a steady diet of high-margin replacement cartridges.
All those recurring consumables sales are generating considerable free cash flows, which topped $650 million last year. The balance sheet contains more than $10 per share in cash, with only a minuscule amount of debt. Analysts are forecasting full-year earnings of $4.04, representing a price-to-earnings multiple of 21 based on current prices, as well as a 21% improvement over the $3.34 earned last year. Lexmark's growth rates may not be shocking, but they're far from disappointing.
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Fool contributor Nathan Slaughter almost spent more on his last ink cartridge replacement than he did on his printer. He owns none of the companies mentioned.
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