KODAK's PROFIT FALLS 14% IN 2Q 2008
KODAK's PROFIT FALLS 14% IN 2Q 2008
2008-08-01 at 2:42:53 pm #20039
Eastman Kodak’s Profit Fell 14% In 2nd Quarter
Kodak Net Income Falls 14% as Material Costs Surge
AUG 08 — Eastman Kodak Co. posted second- quarter profit that trailed analysts’ estimates on rising costs for materials and development of the cameras and printers taking the 128-year-old photography company into the digital age.Net income dropped 14 percent to $495 million, or $1.62 a share, from $575 million, or $2, a year earlier, the Rochester, New York-based company said today in a statement. Excluding restructuring and other charges, Kodak had a loss of 13 cents a share, missing the average estimate for a profit of 15 cents.
The loss on the adjusted basis is Kodak’s second straight since Chief Executive Officer Antonio Perez concluded a four-year program to focus on digital cameras and inkjet printers. Revenue and profit at Kodak’s traditional film business fell because of waning consumer demand and rising costs for aluminum and silver. Costs to develop products cut earnings at other units.“It’s costing them more to generate $1 of revenue,” said Shannon Cross, an analyst with Cross Research in Livingston, New Jersey, who recommends selling the stock. Perez “is placing bets on certain products and those businesses are costing him more than he anticipated,” she said in an interview.Sales rose less than 1 percent to $2.49 billion. The average of six analyst estimates compiled by Bloomberg was for sales of $2.44 billion. The company doesn’t issue quarterly forecasts.Kodak declined $1.09, or 6.9 percent, to $14.68 at 9:31 a.m. in New York Stock Exchange composite trading. The stock had declined 38 percent in the past 12 months.
Kodak reaffirmed its sales growth projection of as much as 2 percent, to about $10.5 billion based on last year’s revenue. Analysts, on average, project sales of $10.3 billion. Full-year earnings from operations will be in the low end of its forecast of $400 million to $500 million, Kodak said today.The year-ago quarter included benefits from the sale of a health unit. This quarter’s adjusted loss of $40 million compared with a profit of $112 million, or 39 cents, a year earlier.Kodak said in May it will raise prices as much as 20 percent on film, paper and printing plates that use silver and aluminum. A $1 increase in the price of silver costs Kodak an additional $20 million, Chief Financial Officer Frank Sklarsky said in May.“Unprecedented commodity cost increases across the business are presenting a headwind that we are aggressively addressing,” Perez, 62, said in today’s statement.The price of silver futures have jumped 36 percent in 12 months on the Comex division of the New York Mercantile Exchange. Aluminum traded in London has risen 24 percent. Crude oil futures in New York rose by more than 30 percent so far this year.
Sales rose at two of Kodak’s three divisions, declining only in the traditional film business. Sales in the U.S. fell 5.6 percent, to $913 million, while international revenue climbed 4.7 percent to $1.57 billion. Revised figures released by the Commerce Department today suggest the U.S. may have tipped into a recession in the final three months of 2007.The Consumer Digital Group, which makes cameras, posted a sales gain of 17 percent and an operating loss of $49 million on research and development costs. The loss narrowed from $51 million a year earlier.Revenue from the Graphic Communications Group, which makes printers, rose 4.8 percent to $880 million, while sales of film and entertainment products fell 14 percent to $847 million. Both units reported profit that fell 55 percent.The company reaffirmed its forecast for digital revenue growth of 7 percent to 10 percent this year. Perez is investing more to develop digital products that will lift sales and said he expects to sell more inkjet printers in 2009.
Perez became chief executive in June 2005 and last year completed a four-year program designed to return the company to profit. Kodak spent $3.4 billion to cut 28,000 jobs as it expanded its digital and print products to lift sales, and Perez plans to roll out 50 percent more digital products this year than in 2007Kodak has paid down $242 million of debt since the end of 2007, bringing its outstanding loans to $1.36 billion at the end of the quarter. The company had $2.31 billion in cash on hand.Cash generation will be $725 million to $825 million, above the prior forecast of as little as $400 million, Kodak said today. The new figure includes a $575 million tax refund and interest from a settlement with the Internal Revenue Service.The tax refund, disclosed last month, added 88 cents to earnings in the most recent quarter. Kodak is using the money to help buy back as much as $1 billion in stock.