Kodak 3Q loss narrows

digital sales rise

November 01, 2006|By New York Times News Service

The Eastman Kodak Co., still struggling with the accelerating demise of its mainstay film business, said yesterday that it lost $37 million, or 13 cents a share, in the third quarter.

It was the company's eighth consecutive quarterly loss, and it was accompanied by a sales drop. Still, Antonio M. Perez, Kodak's chairman, chief executive and president, insisted that Kodak was on track to be a profitable digital company by 2008, the timeline he has been stressing for more than two years.

"We are showing the momentum we need to achieve our goals," he said in a conference call.

Investors will take a lot of convincing. According to Thomson Financial, none of seven analysts who follow the Rochester, N.Y., company recommend the shares. Kodak's shares rose 65 cents, or 3 percent, closing at $24.40, but several analysts attributed the rise to buying by short sellers.

"The odds are 50-50 that Kodak will be a profitable company by 2008, and those are not odds I like to bet on," said Naveed Yahya, chief investment officer for the Fischer Investment Group. Fischer has been steadily reducing its Kodak holdings and calls the stock "a great candidate for tax-loss selling."

Revenue, which dropped to $3.2 billion from $3.55 billion a year ago, was certainly no source of relief. A large part of the drop came from Kodak's film business, which has long been in decline; some of it came because Kodak intentionally stopped promoting its lower-price cameras; and some of it came in Kodak's health group, a business Kodak hopes to quit. But sales in Kodak's graphic communications group, an area that Kodak has pegged as high growth, dropped by 1 percent, too.

Indeed, Kodak started the year predicting that digital sales would grow by 16 percent to 17 percent. Perez concedes now that growth is unlikely to hit double digits.

Still, the quarter compared favorably with last year, when sluggish sales and profit combined with one-time charges to yield a third-quarter loss of $914 million, or $3.18 a share. Kodak ended the quarter with $1.1 billion in cash, double last year's amount, and it reduced debt by $192 million from the second quarter. It continued to farm out manufacturing operations and cut 1,650 more jobs, resulting in higher margins in most of its product lines.

But perhaps most significant, the quarter was the first time that Kodak's digital profit rose more than profit from its traditional film businesses declined.

Specifically, after charges and other items, Kodak earned $105 million on its portfolio of digital products in the quarter, up from $7 million last year. It earned $109 million from traditional products, down from $148 million.

Although $60 million of Kodak's profit came from a nonrecurring sale of intellectual property, analysts were still heartened.

"This was an interesting milestone," said Jack L. Kelly, who follows Kodak for Goldman Sachs. "We still don't know how profitable Kodak can be in a digital world, but you could argue that they've bottomed."

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