Lexmark International (NYSE:LXK) reported better than expected revenue growth – up merely 1% year over year – in its recently announced third quarter earnings but the stock price dropped as profits slid 6.9% on account of higher costs. The stock has recovered since as the company announced initiation of a quarterly dividend program soon after. Lexmark is relatively small player in the printer market compared to giants like HP (NYSE:HPQ), Canon (NYSE:CAJ) and Epson.
We currently have a $32.62 Trefis price estimate for Lexmark, in line with market estimates based on our DCF valuation model.
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Managed Print Services to benefit from Pallas Athena Acquisition
While Lexmark’s earnings disappointed the investors as the company reported an expected revenue decline of 4%-6% in fourth quarter, positive trends were seen in sales of higher-end printers that serve more people in an office, and tend to generate more recurring supplies revenue.
The company also reiterated its focus on managed print services business and cited the recent acquisition of Pallas Athena, a business process management software company, which is expected to further strengthen Lexmark’s end-to-end managed print services (MPS) and business process solutions capability with the addition of process mining, business process management and document output management software technologies. MPS was the fastest growing business segment for Lexmark in third quarter with revenues up in excess of 25%.
Upon completion the transaction, Pallas Athena will become a part of Perceptive Software, a stand-alone business unit within Lexmark.
Lexmark Initiates Quarterly Dividend Program
Soon after its Q3’11 earnings, Lexmark announced that its board of directors has approved a regular quarterly cash dividend program. The initial cash dividend of $0.25 per share will be paid on Nov. 30, 2011, to shareholders of record as of the close of business on Nov. 15, 2011. The quarterly rate represents an annualized dividend of $1.00 per share. 
The news was well received by the investor community and the stock jumped ~3.5% after the announcement yesterday.Notes: