News

Kodak posts drop in Q3 profit, but beats forecasts

October 22, 2003

ROCHESTER, N.Y. -- Eastman Kodak Co., betting its future on digital photography as it wrestles with a three-year slide in film sales, posted a 63-percent drop in third-quarter profit but beat Wall Street's forecasts by a wide margin.

According to an article in Newsday.com, the world's largest photography company said Wednesday it earned $122 million, or 42 cents a share, down from $334 million, or $1.15 a share, a year ago.

Excluding restructuring and other one-time items, however, earnings were $252 million, or 88 cents a share. That beat the consensus forecast of 57 cents a share among analysts surveyed by Thomson First Call, the article said.

Sales rose 3 percent to $3.447 billion from $3.352 billion. Excluding the impact of the dollar's strength, sales fell 1 percent.

Sales in its online photo-sharing service leaped 43 percent, inkjet paper sales rose 33 percent and revenues from photo kiosks and related products were up 14 percent.

While the operating profit was better than anticipated, "there are so many questions with regard to Kodak's future strategy that it has little impact in terms of how people are viewing the company," said analyst Shannon Cross of Cross Research in Shore Hills, N.J., in the article.

"The track record we've seen out of management in terms of being able to hit targets and implement a strategy has been pretty spotty," she said. "That's where a lot of the investor concern comes from."

Last month, Kodak slashed its generous annual dividend by 72 percent to fund a major shift away from its ailing conventional film business and into the fast-growing but more competitive digital arena. The move infuriated investors, who have driven the stock down to 18-year lows, according to the article.

Kodak expects to jump above $1 billion in digital imaging sales this year. By year-end, industry analysts expect that filmless digital cameras, which record snapshots on computer chips, will begin outselling traditional film cameras for the first time in the United States.

The company took a third-quarter charge of $125 million, or 44 cents a share, to cover job cuts. It is eliminating up to 6,000 jobs this year, which will shrink its payroll to around 62,000 from a peak of 136,500 in 1983.

It also lowered its estimated annual effective tax rate from 24 percent to 19 percent, which boosted per-share earnings by 10 cents.

In its photography division, U.S. sales fell 4 percent to $1.01 billion even as consumer digital cameras notched their first profit with a 117 percent surge in sales. Commercial imaging sales rose 6 percent to $373 million and health imaging sales totaled $571 million, up 1 percent.

U.S. sales of consumer film products, including 35mm film and single-use cameras, sank 12 percent amid heightened competition. Kodak controls about two-thirds of the U.S. film market but profits have been hit by falling prices and a slump in sales dating back to August 2000.

Kodak expects its still unprofitable digital sector to account for half its profit and 60 percent of sales by 2006, up from 30 percent now.