After reporting an encouraging second quarter last week, Lexmark Inc. (LXK) has now announced its intention to resume the share buyback program. In a conference call, the printing solution provider commented that it has managed to generate strong cash as well as maintain a superb liquidity position.
The re-initiation of the share repurchase program is indicative of management's commentary and is a good way of encouraging investor confidence as it would return shareholder value.
The repurchase program had received the board's approval back in May 2008. As per the approval, Lexmark was allowed to buyback an additional $0.75 billion of its Class A Common Stock for a total repurchase value of $4.65 billion.
The authority gives Lexmark the power to selectively repurchase its stock from time to time in the open market or in privately negotiated transactions depending upon market price and other factors.
As of December 31, 2010, there was approximately $0.5 billion remaining under the authorization. There were no share repurchases from the fourth quarter of 2010 ending December 31, 2010 till the recently concluded quarter.
Since the inception of the program in April 1996, the company repurchased approximately 91.6 million shares for an aggregate cost of approximately $4.2 billion as of December 31, 2010.
Now, the company expects to buy back $250.0 million shares of its common stock during the back half of this year. Lexmark has already signed an initial accelerated share repurchase agreement for $125.0 million outstanding shares.
This will leave $366.0 million shares outstanding under the May 2008 share repurchase program. The funding for the buyback will be made form the existing cash balance as of June 30, 2011.
Lexmark ended the quarter with $1.34 billion of cash, cash equivalents and marketable securities, up from $1.27 billion in the previous quarter.
Lexmark's second quarter results were encouraging, as both top and bottom lines surpassed our expectations. However, Lexmark provided a lackluster revenue outlook for the third quarter. Though new products launched during the quarter could stem market share losses, the impact on results could still be some way off.
Lexmark operates in a highly competitive market. So there is a constant price war among major players to snatch market share from one another. On top of that, the market is narrowing as digital technology and e-commerce is becoming more prevalent.
However, Lexmark may benefit from its retail presence as it sells through Best Buy Co. (BBY) stores in the U.S.
Currently, Lexmark has a Zacks #3 Rank, implying a short-term Hold rating.
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