Eastman Kodak Co (EK.N) posted a disappointing first-quarter profit as growth in its consumer printing unit took a backseat to one-time proceeds from technology licensing, sending its shares down 15 percent.
For the second quarter in a row, the company's bottom line was propped up by deals licensing its patents to camera and phone makers, fueling concern about the long term health of its camera, film and printer businesses.
Analysis
Eastman Kodak Co (EK.N) posted a disappointing first-quarter profit as growth in its consumer printing unit took a backseat to one-time proceeds from technology licensing, sending its shares down 15 percent.
For the second quarter in a row, the company's bottom line was propped up by deals licensing its patents to camera and phone makers, fueling concern about the long term health of its camera, film and printer businesses.
The company no longer expects to potentially earn a profit from continuing operations in 2010. Instead they outlook a net loss of $50 million to $150 million.
For the first quarter, Kodak's revenue jumped to $1.93 billion from $1.47 billion one year ago. This year's results include $550 million from IP deals with Korea's LG and Samsung. Revenue’s excluding non-core IP deals and favorable foreign exchange was down 9% year over year.
Kodak recently launched a new line of inkjet printers, which it expects to become profitable beginning in 2011, and is pushing its digital cameras with big advertising campaigns. Kodak needs to invest heavily in its inkjet platforms. Based on personal experience, I must say this is a very difficult uphill battle with HP where for years they will have to “buy” a subscriber base large enough to start purchasing high-margin cartridges. A long-time financially struggling Kodak has to only rely upon non-recurring IP licensing for cash-flow to rebrand itself as a digital imaging powerhouse and to offset declines in sales tied to discretionary consumer spending and commercial business.
Kodak, similar to its neighbor across the river in Rochester Xerox, has for years ignored the digital transition in its very core photo business only to see analog film business disappearing at an alarming rate; Despite a strong brand name anonymous with photography, they have been unable to make money digitally to offset the revenue declines in the analogue business.
Kodak has been shifting to digital products and services as demand for traditional cameras and film slip. Its first-quarter profit was $129 million, or 40 cents a share, compared with a year-earlier loss of $360 million, or $1.34 a share. The profit excluding special items, were 82 cents a share, compared with analyst consensus estimate of 90 cents a share. Its shares were down 15% on the New York Stock Exchange.
Revenue from Kodak's consumer digital businesses-which is the company's largest and includes cameras, in-store photo kiosks and the Kodak Gallery unit-more than doubled to $891 million. Previously, sales were rather evenly split between U.S. and international units, but the U.S. contributed 80% of sales this quarter.
Sales in the film, photo-finishing and entertainment group fell 14% to $431 million, as film sales continued to deteriorate. Sales in the graphic communications group, which includes commercial printing, edged up 1% to $611 million. In the Graphic communications market, Kodak competes mainly with Xerox’s IGen 4 and HP’s Indigo digital platforms. Both Xerox and HP have much stronger balance sheets, more established market presence, better technology, better finishing and more robust workflow and more feet on the street for sales and demand generation compared to Kodak.
Though Kodak reiterated most of its full-year forecast, including reaffirming its forecast of relatively flat revenue growth, the company widened its expected loss from continuing operations to a range of $50 million to $150 million as it books charges for retiring some debt early. The company in February said it expected to report a loss of $50 million to a profit of $50 million for the year.
Earlier this year, Kodak repurchased $300 million in 10.5% notes purchased by private equity firm Kohlberg Kravis Roberts & Co. as part of a $700 million capital injection.
Kodak said its next significant debt maturity isn't until 2013, with most debt due in 2017 and beyond.
2010 will be a make or break year for Kodak.
http://www.glgroup.com/News/A-...s-Dive-15-48159.html
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