Lexmark International, four executives face shareholder class action

Lexmark International, four executives face shareholder class action


The business services and products firm Lexmark International and four of its current or former executives have been named as defendants in a shareholder class action lawsuit alleging a number of failed disclosures.

Specifically, the suit claims the company and executives did not disclose to investors that demand and growth for its supplies business were beginning to wane, thanks in large part to planned price increases rather than actual interest on the part of customers in the services and products Lexmark International provided. Moreover, because of those price hikes, customers purchased large amounts of inventory before they went into effect, leading to excessive later inventory among the company’s European wholesale distributors in particular.

The suit was filed in the U.S. District Court for the Southern District of New York and has a class period from Aug. 1, 2014, to July 20, 2015. In addition to Lexmark International itself, the class action also names former chief executive officer David Reeder; former chief executive officer Paul Rooke; executive vice president and president of Lexmark’s imaging solutions and services division Martin Canning; and former interim chief financial officer Gary Stromquist as defendants.

Lexmark and four executives face a securities class action suit.Lexmark International and four executives face a securities class action suit.

Lexmark’s ups and downs
While Lexmark International had been performing well for most of 2014 and beyond, the stock price took a turn for the worse in July 2015, when it reported disappointing second-quarter results. The company revealed that revenues fell slightly on a year-over-year basis even as the gross profit margin grew, but operating income went from rising 7 percent to falling by 2.2 percent.

Moreover, the company noted that, “The 2015 restructuring negatively impacted second quarter 2015 GAAP pre-tax earnings by $32 million,” even as it said it was hopeful the effort would generate some $65 million in pretax savings.

The company also released somewhat downcast expectations for both the third quarter and remainder of the year. Less than a year later, Lexmark International announced that it had agreed to be acquired – by Apex Technology and PAG Asia Capital – following “an exhaustive strategic alternatives review process focused on maximizing shareholder value.”

How the stock price moved
At the start of the class period, in August 2014, stock in Lexmark International was trading at $47.34 per share, and reached its peak for the class period a few weeks later, at $50.75. But less than a year later, when the disappointing second-quarter results were revealed, there was a steep decline in the price, which fell from $45.78 to just $28.34 over the course of a little more than a month. The price later bottomed out at $24.45 per share in mid-February 2016.

After that, it recovered somewhat, spurred in part by the acquisition announcement, and closed north of $40 per share once again in November of last year.

For more information on this case or other class action litigations, please contact Sam Wankel, Senior Vice President, Research, Battea Global Litigation Research, Inc., at 203-987-4949 or info@battea.com.