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Kodak Posts Loss During Digital Transition
Apr 25, 2005
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Eastman Kodak Co., rushing to fortify its digital businesses as film-based photography wanes, recorded a loss of U.S. $142 million, or $0.50 a share, in the January-March period. That compared with a profit of $21 million, or $0.07 a share, in last year's first quarter.

Excluding a one-time charge of $0.53 related to cost reductions, Kodak posted a profit of $0.03. Analysts surveyed by Thomson Financial had forecast earnings of $0.33 a share.

Sales fell 3 percent to $2.83 billion from $2.92 billion. Analysts had expected revenues to be flat compared with a year ago.

"This quarter wasn't what we wanted," Kodak Chief Executive Daniel Carp told analysts. "But we know what we have to do. (There's) a lot of moving parts in this company but a world-class team to manage them and that's why we're going to deliver the year we said we'd deliver."

In January, Kodak wrapped up a nearly $3 billion shopping spree to expand its reach as a digital heavyweight in photography, medical imaging and commercial printing. It had debts of $2.4 billion at the end of March.

With the era of soaring sales and fat profits from silver-halide film now departed, Kodak expects digital technology to become its biggest source of revenue this year for the first time. Despite the weak quarter, it reiterated its full-year forecast of $2.60 to $2.90 a share in operating profits. Analysts currently forecast earnings at $2.61 a share in 2005.

Kodak is eliminating 12,000 to 15,000 jobs by 2007, which will trim its work force to around 50,000. It has cut more than 11,000 employees already, including 1,650 this year.

Sales of digital products and services in all its businesses rose 23 percent to $1.32 billion, helped by a sharp rise in sales of cameras, kiosks and thermal printers. But revenues on the analog side dropped 18 percent to $1.51 billion, 2 percentage points steeper than predicted.

In the digital photography and motion-film unit, sales fell 9 percent to $1.8 billion, while operating profits plunged to $4 million from $25 million. Sales of consumer film to dealers sank 29 percent, hurt especially by temporary reductions in inventory among retailers in China.

Analysts say Kodak's financial prospects will remain blurred while it integrates a wide assortment of businesses it acquired over the last 2 years.

"The volatility is going to remain for, I would say, at least a couple years," said Shannon Cross of Cross Research in Short Hills, N.J.

In the shrinking but still lucrative film-based arena, "you don't know how fast the demand is going to fall off and how quickly restructuring is going to be able to offset the pressures from lower demand," Ms. Cross said. "And then you've got a digital business where you're moving into new business lines, you don't know how fast those are going to grow and you don't know the margins."

Health imaging sales eased 1 percent to $626 million, reflecting lower-than-expected digital sales that Kodak blamed on operational issues. Graphic communications sales rose 30 percent to $368 million, largely because of its buyout last May of the NexPress Solutions joint venture.

The results contain a variety of other charges and costs totaling $0.13 a share, including higher-than-expected fixed costs of $0.07 per share from traditional manufacturing low downs at year-end and rising raw material costs.

Digital accounted for around $5.5 billion of sales in 2004, but will vault as high as $8 billion this year, Kodak said. Chemical-based businesses will account for around $6.6 billion, down from $8 billion in 2004. (AP)

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