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Monthly Financial Wrap-Up

7 Sep, 2004 By: Mike Dudek imageSource

Monthly Financial Wrap-Up

Each month we track changes in stock values of major public players in the
imaging industry. The following chart depicts most recent month-end prices
compared to September 30, 2003. Danka and Ikon continue to lead the value growth
race this year. Lexmark and Xerox continue their positive trend.If we had
sufficient foresight to purchase these four stocks on September 30, 2003, we
would have realized a robust 43 percent growth. By the way, Global stock faded
$6.33 from a month earlier.

Latest Industry Developments

We have plenty of earnings releases to report this month.

Danka: Announced first quarter revenue of $310 million, a 7 percent decline
(10 percent including currency effect) from $334 million a year ago, with
earnings of $7.9 million, a 58 percent increase. Net income was $421,000 and $27
million of cash was consumed during the quarter. The revenue decline was
primarily attributed to lower equipment and related sales. Danka reported that
service revenue was stable for the fourth consecutive quarter and believe that
its desktop connected solutions and multi-vendor services will fuel demand for
equipment revenue.

Opinion: Danka’s reported service revenue at $157 million actually declined
by 5 percent from a year ago. In addition, we believe that its service revenue
will continue to decline in future periods—following its equipment revenue
trend. The negative cash flow during the quarter is a substantial problem that
we will track in future periods.

Ikon: Reported revenue of $1.16 billion, a 1.3 percent decline from a year
ago, with net income of $8 million including a $33 million loss from early
extinguishment of debt. Copier/printer revenue grew by 8 percent and service
grew by 2.6 percent over the prior year. Color revenue reportedly grew 50
percent and national account revenue doubled from last year. Finance revenue
declined 61 percent, resulting from the recent lease portfolio sale. IKON
repurchased 2.3 million shares for $25 million in the quarter. The company also
announced that its CFO-Bill Urkiel was departing.

Opinion: In recent articles, we have noted signs of revenue stability for
IKON. Growth in both copier/printer and service revenue compared to prior
periods are encouraging indicators. Let’s watch future quarters to determine if
this positive trend continues.

Global: Reported revenue of $212 million in the first quarter, an increase of
18 percent from a year ago. The company announced an operating income of $25
million, an increase of 27 percent, and net income of $12.9 million compared to
$4.3 million last year. The current period had a $1.7 million charge and the
prior period had an $8.4 million charge for early extinguishment of debt. The
internal growth rate for automated equipment revenue, primarily copiers, was 2

Opinion: While Global reported a record revenue quarter and excellent
earnings, its management team cannot be satisfied with the internal growth rate
for copier equipment. We will watch this trend in future quarters. Companies
that actively acquire others need to clearly distinguish internal and external
growth rates to assure shareholders that the company’s growth is not only
attributable to newly acquired revenue.

Xerox: Announced revenue of $3.9 billion for the quarter, a decline of 2
percent from the prior year; however, equipment revenue grew 5 percent. Color
revenue reportedly grew 17 percent and represents 25 percent of total revenue.

HP: Announced a number of substantial outsourcing deals worth $500 million,
including one with MCI that consists of management of 1,500 printers.

Opinion: Printers, printers, printers—need we say more. We have reported on
this trend in several of our articles. Printers and color are the focus of all
of the manufacturers and mega-dealers. They are going after this space as are
the larger independents. We’ll have more on this topic in future articles.

Canon: Declared revenue of $7.9 billion for the second quarter, a 5.8 percent
increase from a year ago with net income of $708 million, an increase of 36

Lexmark: Reported revenue of $1.2 billion for the second quarter, an increase
of 11 percent from a year ago. It’s the company’s fourth consecutive
double-digit growth quarter. The company had a net income of $137 million, a 34
percent increase from $102 million a year ago. Net operating cash generated
during the quarter was $135 million and Lexmark repurchased 750,000 shares for
$70 million.

Oce: Reported revenue of 682 million Euros, a decline of 1.4 percent.

EFI: Announced revenue of $109 million for the second quarter, an increase of
23 percent from the prior year, with net income of $12.6 million, a 37 percent

ITEX: I am very excited to announce that I will be appearing at Imaging
Network’s ITEX convention in Las Vegas February 3-4, 2005 to speak about my
favorite topics, mergers and acquisitions.

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