Kodak Reports 1Q Results
May 1, 2008
Eastman Kodak Company (NYSE:EK) reported a 35 percent, or $61 million,
year-over-year improvement in its first-quarter loss from continuing operations
on sales of $2.093 billion. Kodak’s revenue from digital businesses rose 10% to
$1.366 billion, driven by strong year-over-year increases in most of its
digital businesses.
“Our first-quarter results are very much in line with our expectations,
which included forecasted seasonality, and provide an early indication that
Kodak is on a growth track,” said Antonio M. Perez, Chairman and Chief
Executive Officer, Eastman Kodak Company. “We delivered strong performance
across our major digital businesses, reinforcing our confidence in achieving
our revenue, earnings and cash goals for the year.”
For the first quarter of 2008:
- Sales totaled $2.093 billion, an increase of 1% from $2.080 billion in the
first quarter of 2007. Revenue from digital businesses totaled $1.366 billion,
a 10% increase from $1.245 billion in the prior-year quarter. Traditional
revenue totaled $724 million, a 13% decline from $830 million in the first
quarter of 2007.
- The company’s first-quarter loss from continuing operations, before
interest, other income (charges), net, and income taxes was $81 million,
compared with a loss of $186 million in the year-ago quarter.
On the basis of generally accepted accounting principles (GAAP), the company
reported a first-quarter loss from continuing operations of $114 million, or
$0.40 per share, compared with a loss of $175 million, or $0.61 per share, in
the year-ago period. Items of net expense that impacted comparability in the
first quarter of 2008 totaled $2 million after tax, or $0.01 per share. The
most significant items included curtailment gains resulting from previous
restructuring actions of $0.03 per share and gains on asset sales of $0.03 per
share, offset by discrete tax provision items and a legal settlement charge,
together totaling $0.07 per share. Items of net expense that impacted
comparability in the prior-year quarter totaled $95 million after tax, or $0.33
per share, primarily due to restructuring charges, partially offset by a
foreign tax reserve reversal.
Other first-quarter 2008 details:
- Gross Profit margin was 20.3% for the quarter, down slightly from 20.6% in
the year-ago period, primarily attributable to significant year-over-year
increases in silver, aluminum and other raw material costs, and continued
investment in the consumer inkjet business.
- Selling, General and Administrative expenses decreased $9 million from
first-quarter 2007, primarily reflecting the company’s continued focus on
controlling costs. As a percentage of revenue, SG&A was 18.4%, compared
with 18.9% in the year-ago quarter.
- First-quarter net cash generation was a use of $764 million, a $311 million
increase in cash used from the year-ago period. This corresponds to net cash
used in operating activities from continuing operations on a GAAP basis of $767
million in the first quarter, compared with $397 million in the first quarter
2007. This increase in cash usage is due primarily to higher working capital,
including inventory build associated with projected revenue growth, and higher
payments to suppliers related to revenue growth in the prior year's fourth
quarter. The company also made increased payments for performance-based
compensation and for various tax items, contractual obligations and legal
settlements.
- The company’s debt level stood at $1.606 billion as of March 31, 2008,
comparable to the year-end 2007 debt level of $1.597 billion.
- Kodak held $2.203 billion in cash and cash equivalents as of March 31,
2008, compared to the year-end 2007 level of $2.947 billion.
Segment sales and results from continuing operations before interest, taxes,
and other income and charges (earnings from operations), are as follows:
- Consumer Digital Imaging Group sales for the first quarter were $554
million, a 20% increase from the prior-year quarter. Loss from operations for
the segment was $111 million, compared with a loss of $75 million in the
year-ago quarter. The increased loss was driven by the planned investment in
the consumer inkjet business, partially offset by continued earnings
improvement in digital cameras and digital picture frames. In April, the
company introduced the latest in its line of All-in-One printers, the KODAK ESP
5, and announced new retail partnerships with Target Retail Department Stores
in the U.S., and London Drugs and Canadian Tire in Canada. Beginning in the
second half of 2008, Kodak will broaden its current inkjet distribution network
of more than 8,000 retail stores by expanding availability into countries in
Latin America.
- Graphic Communications Group sales for the first quarter were $812 million,
a 4% increase from the year-ago quarter. Loss from operations was $1 million,
compared with earnings of $9 million in the year-ago quarter. This earnings
decline was primarily driven by higher aluminum costs and planned R&D
investment in the commercial inkjet printing business in advance of the
industry’s major trade show, DRUPA, scheduled for May 29 to June 11. At the
show, the company will introduce KODAK STREAM Technology, a revolutionary
approach to continuous inkjet printing that provides offset-class quality,
speed and cost.
- Film, Photofinishing and Entertainment Group first-quarter sales were $724
million, down from $830 million in the year-ago quarter, representing a
decrease of 13%. Earnings from operations were $26 million, compared with $30
million in the year-ago quarter. These results reflect impacts from increased
silver and other raw material costs, decreased sales volume of photographic
film and paper, and the effects of the Hollywood writers’ strike, offset by
decreased SG&A costs and lower depreciation expenses related to the
company’s change in useful life assumptions regarding its traditional
manufacturing assets.
“I am encouraged by the positive customer response that we are receiving
across our digital businesses and the continued strong operational performance
of our traditional business,” said Perez. “We look forward to a strong showing
at DRUPA later this month, and continued growth throughout the year.”
2008 Outlook
For 2008, on a continuing operations basis, Kodak re-affirms guidance
provided in the company’s February investor meeting, including:
- Total company revenue growth in the range of 0% to 2%; digital revenue
growth in the range of 7% to 10%;
- 2008 GAAP earnings from continuing operations in the range of $250 million
to $275 million, including pre-tax charges in the range of $60 million to $80
million for rationalization and carryover restructuring costs;
- On a GAAP basis, cash provided by operating activities from continuing
operations in the range of $575 million to $625 million;
- Cash generation in the range of $400 million to $500 million before
dividend payments and after taking into account payments for carryover
restructuring and other rationalization costs of approximately $150
million.
