ROCHESTER, N.Y., Aug. 2 --
Eastman Kodak Company (NYSE:EK) today reported a $121 million year-over-year
improvement in pre-tax results from continuing operations, reflecting gross
profit margin improvements across all of its major business units. The company
achieved a $97 million improvement in digital earnings and a $31 million
improvement in traditional earnings, as expenses declined. In addition, the
company reported a $135 million after-tax loss from continuing operations, or
$0.47 per share, an improvement of $220 million, or $0.77 per share, as
compared to the prior year.
Kodak also reaffirmed its plan to achieve its full-year financial goals for
net cash generation, digital revenue growth and digital earnings.
“Our second-quarter results reinforce our confidence in our full-year
performance,” said Antonio M. Perez, Chairman and Chief Executive Officer,
Eastman Kodak Company. “Revenues during the second quarter were in line with
our expectations. Earnings improved across all of our major business units,
reflecting our strong focus on cost reduction and operational efficiencies. We
continue to expect a strong second half, with double-digit sales growth in both
of our major digital businesses, driven by a stronger-than-ever portfolio of
digital products, including our revolutionary consumer inkjet printing system,
new image sensors, workflow software, and an expanded line of NEXPRESS digital
color printing presses. I’m pleased with our first-half results, and I remain
confident in our ability to achieve our 2007 key strategic
objectives.”
On the basis of generally accepted accounting principles in the U.S. (GAAP),
the company reported a second-quarter loss from continuing operations of $173
million pre-tax, $135 million after tax, or $0.47 per share, compared with a
loss of $294 million pre-tax, $355 million after tax, or $1.24 per share in the
year-ago period. Items of expense impacting comparability in the second quarter
of 2007 totaled $266 million after tax, or $0.92 per share. The most
significant item was restructuring costs of $316 million before tax and $248
million after tax, or $0.86 per share.In the second quarter of 2006, items that
impacted comparability totaled $206 million after tax, or $0.72 per share,
primarily reflecting restructuring costs.
For the second quarter of 2007:
- Sales totaled $2.510 billion, a decrease of 7% from $2.688 billion in the
second quarter of 2006. Digital revenue totaled $1.460 billion, a 3% increase
from $1.417 billion. Traditional revenue totaled $1.044 billion, a 17% decline
from $1.262 billion in the year-ago quarter.
- The company’s second-quarter loss from continuing operations, before
interest, other income (charges), net, and income taxes was $163 million,
compared with a loss of $257 million in the year-ago quarter.
Other financial details:
- Gross Profit margin was 26.2% for the quarter, up from 21.4% in the prior
year, primarily attributable to lower costs, driven by manufacturing footprint
reductions and the favorable impact of foreign exchange, offset by adverse
silver and aluminum costs.
- Selling, General and Administrative expenses decreased $87 million from the
year-ago quarter, reflecting the company’s cost reduction activities. SG&A
as a percentage of revenue was 17%, down from 19% in the year-ago quarter.
- Net Cash Generation for the second quarter was negative $251 million,
compared with negative $74 million in the year-ago quarter. Net Cash
Generation for the first half of 2007 was negative $704 million, compared with
negative $691 million in the year-ago period. This corresponds to net cash used
in operating activities from continuing operations of $298 million for the
second quarter, compared with $17 million in the year-ago quarter, driven
primarily by changes in working capital. For the first half of 2007, net
cash used in operating activities from continuing operations was $695 million,
compared with $554 million in the year-ago period.
- On April 30, 2007, the company completed the sale of its Health Group to an
affiliate of Onex Corporation for $2.350 billion. As previously announced, the
company used a portion of the cash proceeds from that transaction to fully
repay $1.145 billion of outstanding secured term debt. As of June 30, 2007, the
company’s debt level was $1.624 billion, a $1.154 billion reduction from the
2006 year-end debt level of $2.778 billion.
- Kodak held $1.925 billion in cash and cash equivalents as of June 30,
2007.
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 results improved by $78 million to a loss of
$55 million, compared with a year-ago loss of $133 million. This improvement
was driven by changes in product portfolio management and lower SG&A
expenses, partially offset by scaling of the manufacturing and new product
introduction activities in the Inkjet Systems business. Revenues for the second
quarter totaled $1.000 billion, down from $1.105 billion in the year-ago
quarter. This largely reflects anticipated decreases in traditional
photofinishing products and services at retail, partially offset by growth in
consumer imaging services and imaging sensors. The new consumer inkjet printer
line continues to receive strong customer response and the company continues to
expand retail distribution as it increases manufacturing capacity.
- Graphic Communications Group earnings from operations were $44 million,
compared with $16 million in the year-ago quarter. This earnings increase was
primarily driven by manufacturing productivity improvements and lower SG&A
expenses, partially offset by higher aluminum costs. Sales for the second
quarter were $929 million, a 2% increase from the year-ago quarter. Revenues
from digital products improved by 6% for the quarter versus the prior year,
driven by favorable foreign exchange and increased sales of digital plates. In
addition, the Enterprise Solutions business achieved a 40% revenue increase,
driven by strong sales of workflow software.
- Film Products Group earnings from operations were $137 million, compared
with $119 million in the year-ago quarter, representing a strong improvement in
the face of declining revenue. During the second quarter of 2007, the group
achieved a 25% operating margin, as compared with 18% in the year-ago quarter.
The operating margin performance resulted from changing product mix, lower
depreciation expense, and actions to reduce traditional infrastructure ahead of
revenue declines. Film Products Group sales were $559 million, down from $660
million in the year-ago quarter, representing a decrease of 15%.
“The performance of our business units this quarter is more evidence of the
progress that we are making in positioning Kodak for sustainable success,” said
Perez. “I am proud of my team’s performance and I am encouraged by the
enthusiastic market response to our new products. We continue to make
great strides in transforming Kodak into a growing, profitable digital
company.”
2007 Outlook Reaffirmed
Kodak remains focused on three financial metrics as it continues to
transform its business: net cash generation, digital earnings from operations
and digital revenue growth.
As indicated during its first-quarter conference call with investors, the
company’s goal for net cash generation this year is in excess of $100 million
after restructuring disbursements of approximately $600 million. This outlook
corresponds to expected net cash provided by continuing operations from
operating activities, on a GAAP basis, in the range of $200 million to $450
million.
Additionally, the company’s goal for 2007 full-year digital earnings from
operations is $150 million to $250 million, which corresponds to a GAAP loss
from continuing operations before interest, other income (charges), net, and
income taxes for the full year of $550 million to $650 million.
Finally, the company continues to forecast 2007 digital revenue growth of 3%
to 5%, with total 2007 revenue expected to be down between 4% and 7%.
Conference Call
Antonio Perez and Kodak Chief Financial Officer Frank Sklarsky will host a
conference call with investors at 11:00 a.m. Eastern Time today. To access the
call, please use the direct dial-in number: 913-312-1292, access code 4557735.
There is no need to pre-register.
For those wishing to participate via an Internet Broadcast, please access
our Kodak Investor Center web page at: http://www.kodak.com/go/invest.
The call will be recorded and available for playback by 2:00 p.m. Eastern
Time today by dialing 719-457-0820, access code 4557735. The playback number
will be active until Thursday, August 9th at 5:00 p.m. Eastern
Time.
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CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements in this press release may be forward-looking in nature,
or "forward-looking statements" as defined in the United States Private
Securities Litigation Reform Act of 1995. For example, references to the
Company's expectations for digital earnings from operations, digital revenue
growth, net cash generation, sales growth, revenue, and net cash from
continuing operations are forward-looking statements.
Actual results may differ from those expressed or implied in forward-looking
statements. In addition, any forward-looking statements represent the
Company's estimates only as of the date they are made, and should not be relied
upon as representing the Company's estimates as of any subsequent date.
While the Company may elect to update forward-looking statements at some point
in the future, the Company specifically disclaims any obligation to do so, even
if its estimates change. The forward-looking statements contained in this
press release are subject to a number of factors and uncertainties, including
the successful:
- execution of the digital growth and profitability strategies, business
model and cash plan;
- implementation of the cost reduction programs;
- transition of certain financial processes and administrative functions to a
global shared services model and the outsourcing of certain functions to third
parties;
- implementation of, and performance under, the debt management program,
including compliance with the Company's debt covenants;
- development and implementation of product go-to-market and e-commerce
strategies;
- protection, enforcement and defense of the Company's intellectual property,
including defense of our products against the intellectual property challenges
of others;
- implementation of intellectual property licensing and other
strategies;
- integration of the Company’s businesses to SAP, the Company's enterprise
system software;
- completion of various portfolio actions;
- reduction of inventories;
- integration of acquired businesses and consolidation of the Company’s
subsidiary structure;
- improvement in manufacturing productivity and techniques;
- improvements in working capital management and cash conversion cycle;
- improvement in supply chain efficiency; and
- implementation of the strategies designed to address the decline in the
Company's traditional businesses.
The forward-looking statements contained in this press release are subject
to the following additional risk factors:
- inherent unpredictability of currency fluctuations, commodity prices and
raw material costs;
- competitive actions, including pricing;
- changes in the Company's debt credit ratings and its ability to access
capital markets;
- the nature and pace of technology evolution;
- changes to accounting rules and tax laws, as well as other factors which
could impact the Company's reported financial position or effective tax
rate;
- pension and other post retirement benefit cost factors, such as actuarial
assumptions, market performance, and employee retirement decisions;
- general economic, business, geo-political and regulatory conditions or
unanticipated environmental liabilities or costs;
- market growth predictions;
- continued effectiveness of internal controls; and
- other factors and uncertainties disclosed from time-to-time in the
Company's filings with the Securities and Exchange Commission.
Any forward-looking statements in this press release should be evaluated in
light of these important factors and uncertainties.
Download an ADOBE Acrobat version of the
Second Quarter 2007 Results Non-GAAP Reconciliations (pdf).
Download an ADOBE Acrobat version of the
Financial Discussion Document (pdf).
