3 December 2006
Eastman Kodak Co. posted a narrower third-quarter loss and said its full-year losses will be smaller than forecast because of higher sales of digital-printing systems for retailers.
The shares rose after Kodak said its net loss shrank to $37 million, or 13 cents a share, from $914 million, or $3.18, a year earlier, when the company had a tax-related writedown. Sales fell 9.8 percent to $3.2 billion, Rochester, New York-based Kodak said in a statement.
Chief Executive Officer Antonio Perez reduced manufacturing costs and limited Kodak's sales of lower-priced items such as digital cameras to shore up results. Perez today predicted a smaller loss in 2006, even as he reduced the sales forecast, reflecting his pursuit of more-profitable business.
"The fact that management is focusing on margins rather than revenue growth makes sense,'' said Naveed Yahya, chief investment officer of Fischer Investment Group in Pittsford, New York, which owns 2,700 Kodak shares.
"The fact that they beat earnings by a pretty wide margin is going to be a positive.''
The quarterly loss, the company's eighth straight, extends Kodak's longest streak of losses in at least 10 years. Results mirrored the outlook for the full year, with profit excluding some items beating analysts' estimates and sales missing them.
Excluding costs for the firings and plant closures, profit was 44 cents a share. Estimates from analysts ranged from 8 cents to 30 cents, and averaged 19 cents, according to a survey of five analysts by Thomson Financial. Sales estimates averaged $3.29 billion, according to Thomson.
Kodak shares rose 65 cents, or 2.7 percent, to $24.40 at 4:03 p.m. in New York Stock Exchange composite trading. They have gained 4.3 percent this year.
Profit Margins
Perez plans to cut as many as 27,000 jobs, put the health- care imaging unit up for sale and set up printing kiosks in busy locations such as Wal-Mart Stores Inc. He cut production costs to boost profit margins and limit the impact of the expenses for the firings.
The results "show the continued momentum we need to achieve our goals for the year,'' Perez said on a conference call.
Kodak's loss excluding some items will be $400 million to $600 million in 2006, less than its previous prediction of $500 million to $850 million. Sales will drop 6 percent, rather than 3 percent, as Perez focuses on profitable sales.
"They're not going for volume,'' said Ulysses Yannas, a broker at Buckman Buckman & Reid in New York, who has watched the company for more than 30 years and owns some shares. "They're going for profitability.''
Gross margins widened to 27.3 percent, up from 25.9 percent, helped by lower manufacturing costs and higher prices. Selling, general and administrative expenses fell 16 percent.
Digital Gains
Profit from digital products soared to $105 million from $7 million, boosted by a technology-licensing deal and higher profit at the graphic communications unit. Revenue fell 1.2 percent to $1.79 billion as the company sought higher-margin sales.
Earnings in the graphic communications business, which sells commercial products such as document scanners, more than tripled to $31 million. Sales were little changed at $880 million, as declines in film offset digital growth.
Consumer digital sales dropped 2.9 percent to $640 million, and the unit posted profit of $24 million after a loss last year. Lower sales of home printing devices such as photo paper and printer docks offset gains in the kiosk business.
Perez, 60, turned to kiosks to shore up digital revenue as traditional film sales slowed. Wal-Mart, the world's largest retailer, plans to add Kodak kiosks to 1,000 of its busiest stores. The kiosk business grew 11 percent in the third quarter.
Sales in the film unit dropped 21 percent to $1.07 billion. Profit shrank 20 percent on lower sales and higher silver prices.
Health Care
Health unit sales dropped 6 percent to $597 million, hurt by a decline in radiology film and digital products. In May, the company announced it might sell its 110-year-old X-ray film and equipment unit, or enter a joint venture.
Costs to explore those options drove down the unit's earnings. Profit fell 29 percent to $68 million. Perez has said he would make a decision on what to do with the unit by year-end.
Kodak, founded by George Eastman in 1880, began marketing the first consumer camera in 1886 with the slogan "You press the button -- we do the rest.'' The company entered the health business in 1896, a year after the discovery of the X-ray, when Eastman began supplying plates and paper for the new process.
Kodak is the biggest U.S. seller of digital cameras, docks, printers, retail kiosks and online services and ranks third worldwide in camera sales behind Canon and Sony Corp., according to Framingham, Massachusetts-based researcher IDC.
source: Bloomberg.net