Lexmark Prints Money

Lexmark International (NYSE:LXK), known primarily for its laser and inkjet printers, moved ahead this morning on strong Q4 and 2003 results. Full-year revenues jumped 9% year over year to $4.76 billion, while gross margins improved 1%. Coupled with improved operating margins, the numbers helped drive a 20% increase in earnings per share.

While the company didn't provide a cash flow statement in its release, it did peg full-year cash from operations at $748 million. With capital expenditures at $94 million -- down significantly from prior levels -- free cash flow is now better than $650 million. That compares well with recent results.

Lexmark nevertheless worded its Q1 guidance carefully, expressing concern over the economy and price competition. Both impacted the late 2003 numbers: Gross margins fell in Q3 on lower printer margins, only partially offset by higher margins on supplies. (Of course, strong printer sales help drive supplies sales, which make up more than half of Lexmark's revenues.)

Meanwhile, it was an interesting year for the box makers that drive demand for Lexmark's products. We saw a boom in the popularity of laptops from Apple (NASDAQ:AAPL) and others. Dell (NASDAQ:DELL) moved into printers, while Gateway (NYSE:GTW) attempted to recast itself as a TV maker. Hewlett-Packard (NYSE:HPQ), among others, made the leap into portable music.

Given all this, you might forget that people still need to print things. But they do, and the rise of electronic documents and wireless networking notwithstanding, growth in digital photography continues to push in the other direction.

Lexmark trades at about 24 times 2003 net income, not super-rich given last year's performance. At the very least, today's upward move on strong volume indicates that investors are watching closely.

Share your thoughts on the state of the printer business on our Lexmark International discussion board.

Dave Marino-Nachison can be reached at [email protected].