Kodak says earnings will fall Amid competition from Fuji, cuts appear likely for company

September 16, 1997|By BLOOMBERG NEWS

ROCHESTER, N.Y. -- Eastman Kodak Co. yesterday said it will report lower earnings for the third quarter and year as archrival Fuji Photo Film Co. steals more of the U.S. photographic film market, forcing it to eliminate money-losing units.

Kodak said its third-quarter profit will be significantly less than a year ago if business in September doesn't improve from a weak July and August. For the year, operating profit could be as much as 25 percent below last year's results.

The third straight drop in quarterly profit will give Chairman and Chief Executive George Fisher the political muscle to make the cuts at the tradition-bound company he should have made years ago, analysts said. Kodak also needs to slash costs so it can respond to Fuji's share-stealing prices and keep investing in such emerging businesses as digital imaging, they said.

"A crisis had to develop for this to happen, and a crisis has developed," said Ulysses Yannas, an analyst at Mercer, Bokert, Buckman & Reid.

Shares of Rochester, N.Y.-based Kodak fell $5.50 to $60 after the tight-lipped company issued an uncharacteristically frank statement about its performance.

The stock is down 20 percent this year, and last traded this low in October 1995.

"The market reaction suggests shock," Yannas said.

The company was expected to earn $1.21 a share in the third quarter, the average estimate of 10 analysts polled by IBES International Inc., compared with $1.22 a year earlier.

For the year, it was expected to earn $4.38 a share, the average estimate of 17 analysts, compared with $4.50 last year before restructuring costs and gains and losses from asset sales.

Fisher should have moved faster to reduce costs, yet the hidebound nature of Kodak wouldn't allow it when he joined from Motorola Inc. in 1993, said Yannas, who forecast job cuts of about 10,000.

Kodak said in January that it would fire 4,000 workers worldwide from a staff currently at about 95,000.

The company declined to comment on any job cuts or detail what businesses could be eliminated.

Kodak President Daniel Carp said Fuji's price cuts continue to erode the company's share of the U.S. film market, and that Kodak may be forced to cut prices to fight back.

"If the summer share loss continues, we're not dismissing [price cuts] as an alternative," he said. "There's no question share loss accelerated over the summer as the pricing gap widened."

The company's share of the U.S. film market is about 70 percent, analysts have said. Fuji's share is 15 percent.

While some analysts say Kodak has lost as much as 6 percentage points of market share, the company disputed that in July. Kodak said its share of the market for color negative film fell 1 to 2 percentage points. Carp didn't provide more recent figures.

Carp wouldn't specify which units will most likely experience cuts, though he did say Kodak is looking to reduce costs through all its businesses.

Kodak said it was taking aim at "chronic money losers" as it responds to a "fierce battle" launched by Fuji, which it accuses of exploiting its Japanese "sanctuary" to build its U.S. business.

Among the biggest drains on Kodak's profit is its digital imaging business. Kodak said in July that it expects to generate $1.5 billion in sales this year on which it won't make any money.

In the first half of 1997, the losses from digital totaled more than $100 million, more than in the first half of 1996.

Pub Date: 9/16/97

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