ROCHESTER, N.Y., Oct. 30 --
Eastman Kodak Company (NYSE:EK) today reported third-quarter earnings from
continuing operations of $101 million, or $0.35 per share, on sales of $2.405
billion. Kodak’s revenue from digital businesses rose 2% to $1.641 billion,
driven by strong year-over-year increases in digital capture, consumer inkjet
systems, and document imaging products.
“Despite the global economic weakness, Kodak was profitable in the third
quarter, maintained strong liquidity, and held or improved our market position
in key businesses, reflecting the benefits of the company’s multi-year
transformation,” said Antonio M. Perez, Chairman and Chief Executive Officer,
Eastman Kodak Company. “We remain confident that our strategy is sound, but
given today’s challenging economic climate, we are taking a number of specific
actions to strengthen our operations going forward. These include more tightly
focusing our portfolio of investments, intensifying our emphasis on generating
cash, and aligning our cost structure to the new economic realities. These
actions will better position Kodak to manage through this economic environment
and to take full advantage of the recovery when it comes.”
For the third quarter of 2008:
- Sales worldwide totaled $2.405 billion, a decrease of 5% from $2.533
billion in the third quarter of 2007. Revenue from digital businesses totaled
$1.641 billion, a 2% increase from $1.603 billion in the prior-year quarter.
Revenue from the company’s traditional business decreased 18% to $764 million
on continued declines in Film Capture and Traditional Photofinishing.
- The company’s third-quarter earnings from continuing operations, before
interest expense, other income (charges), net, and income taxes were $147
million, compared with earnings on the same basis of $15 million in the
year-ago quarter.
On the basis of U.S. generally accepted accounting principles (GAAP), the
company reported third-quarter earnings from continuing operations of $101
million, or $0.35 per share, compared with earnings on the same basis of $32
million, or $0.11 per share, in the year-ago period. Items of net benefit that
impacted comparability in the third quarter of 2008 totaled $40 million after
tax, or $0.13 per share. The most significant items include certain changes to
the company’s post-employment benefits, which provided favorability of $0.31
per share, offset by restructuring and rationalization costs of $0.16 per
share. Items of net expense that impacted comparability in the prior-year
quarter totaled $101 million after tax, or $0.35 per share, primarily
reflecting restructuring costs.
Other third-quarter 2008 details:
- Gross Profit margin was 27.5% for the quarter, a slight improvement from
26.7% in the year-ago period. This margin improvement reflects the changes in
post-employment benefits along with increased intellectual property licensing
revenues, favorable foreign exchange, and cost reduction initiatives including
the change in depreciation associated with the previously announced extension
of the useful life assumptions of traditional manufacturing assets. These
factors were offset by negative price/mix, the continued investment in consumer
inkjet, and the impact of higher year-over-year commodity costs for the
quarter.
- Selling, General and Administrative (SG&A) expenses were $363 million
in the third quarter, down 14%, or $61 million, from $424 million in the
year-ago quarter. As a percentage of revenue, SG&A was 15.1%, compared with
16.7% in the year-ago quarter.
- Third-quarter cash use before dividends was $102 million, a $79 million
increase in cash usage from the year-ago period. This corresponds to net cash
used in continuing operations from operating activities on a GAAP basis of $50
million in the third quarter, compared with net cash provided of $1 million in
the third quarter 2007. This increase in cash used is due primarily to lower
cash earnings, including the favorable non-cash impact of a reduction in
post-employment benefits and a non-recurring intellectual property licensing
agreement for which cash will be received in 2009. These impacts were offset by
improvements in working capital and lower restructuring payments.
- The company’s debt level stood at $1.303 billion as of Sept. 30, 2008, a
reduction of $294 million as compared to the year-end 2007 debt level of $1.597
billion.
- Kodak held $1.842 billion in cash and cash equivalents as of Sept. 30,
2008.
- In the quarter, the company repurchased approximately 14 million shares of
its common stock at a cost of $219 million. Since maintaining financial
flexibility is critical in the current environment, additional share
repurchases will depend on the company’s assessment of overall economic and
market conditions. The previously disclosed share repurchase authorization
remains in effect through the end of 2009, and the company will continue to
provide updates on the program at the end of each quarter.
Segment sales and earnings from continuing operations before interest,
taxes, and other income and charges (segment earnings from operations), are as
follows:
- Consumer Digital Imaging Group sales for the third quarter were $820
million, a 7% increase from the prior-year quarter. Earnings from operations
for the segment were $23 million, compared with $18 million in the year-ago
quarter. Third-quarter earnings were driven primarily by cost improvements in
digital cameras and digital picture frames, and increased intellectual property
licensing, partially offset by unfavorable price/mix in digital cameras and
continued investment in consumer inkjet.
- Graphic Communications Group sales for the third quarter were $821 million,
a 2% decrease from the year-ago quarter. Earnings from operations for the
segment totaled $23 million, compared with earnings of $36 million in the
year-ago quarter. This earnings decline was primarily driven by U.S. market
softness for Prepress Solutions as well as unfavorable manufacturing costs
related to higher year-over-year raw material costs for the quarter.
- Film, Photofinishing and Entertainment Group third-quarter revenue was $764
million, down from $928 million in the year-ago quarter, representing a
decrease of 18%, attributable to decreased sales volume of Film Capture and
Traditional Photofinishing. Earnings from operations for the segment were $77
million, compared with $113 million in the year-ago quarter. These results
reflect the effects of lower industry sales volumes and higher year-over-year
commodity costs for the quarter, partly offset by decreased SG&A costs and
lower depreciation expense related to the company’s change in useful life
assumptions regarding traditional manufacturing assets.
“The economic environment is increasingly difficult,” said Perez. “Given the
importance of the fourth quarter to the company’s full-year performance, and
the unprecedented level of uncertainty surrounding the global economy, we must
be prudent going into the fourth quarter and into 2009, which requires us to
adjust our financial outlook. That said, we believe in our overall strategy and
are optimistic about the future, despite the current economic realities. We
have a healthy balance sheet, innovative products and services, and a
well-respected brand that will see us beyond this challenging period.”
Updated 2008 Second-Half and Full-Year Outlook
For 2008, Kodak remains focused on three key financial metrics, as it
transforms itself into a growing company with sustained profitability: revenue
growth driven by digital businesses, earnings from continuing operations, and
cash generation. The company is providing an updated outlook for 2008
performance against these metrics to reflect the impact of global economic
conditions on projected top-line growth and earnings.
Kodak previously forecasted total revenue growth in the range of 0% to 2%
and digital revenue growth in the range of 7% to 10%. For the full year, the
company now expects total revenue to decline in the range of 3% to 5%, and
digital revenue growth of between 1% to 4%, reflecting its strong performance
in the first half of the year. For the second half of the year, the company
expects total revenue to decline in the range of 6% to 10% and digital revenue
to decline 1% to 5%.
The company previously forecasted earnings from operations (EFO), a non-GAAP
measure, to be at the low end of a range of $400 million to $500 million. The
company now expects second-half 2008 EFO to be in the range of $275 million to
$325 million, which translates to $200 million to $250 million for the full
year. This corresponds to forecasted 2008 GAAP earnings from continuing
operations before interest expense, other income (charges), net, and income
taxes, of between $220 million and $270 million for the second half of 2008,
and between $160 million and $210 million for the full year. Full-year GAAP
earnings include pre-tax charges of between $125 million and $150 million for
carryover restructuring and other rationalization costs. These charges are
higher than the previously communicated range of $80 million to $100 million
due to intensified efforts around cost rationalization in the current
environment. The primary factors resulting in this revised guidance are
market-driven softness in overall revenues along with accompanying pricing, mix
and foreign exchange effects, thereby reducing gross profit percentage and
dollars.
With respect to cash generation, despite the challenging economic
environment, the company expects to achieve in excess of $500 million in cash
generation before dividends for the fourth quarter. This corresponds to net
cash provided by operating activities on a GAAP basis for the fourth quarter in
excess of $490 million. Primary factors resulting in the lower cash outlook
are: earnings-related reductions associated with revenue softness and gross
profit declines across the business driven by price/mix, a change in cash from
intellectual property arrangements including an agreement reached in 2008 for
which cash will be received in 2009, and a reduction in proceeds from sales of
real estate.
Form 10-Q and Conference Call Information
The Management Discussion & Analysis document that typically is filed
with the company's earnings news release is included as part of the company's
Form 10-Q filing. You may access this document one of two ways:
- Visit Kodak's Investor Center page at: www.kodak.com/go/invest and click on
SEC filings
- Visit the U.S. Securities and Exchange Commission EDGAR website at: www.sec.gov/edgar.shtml and access
Eastman Kodak under Company Filings
In addition, 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: 913-312-1489, access
code 6460864. There is no need to pre-register.
The call will be recorded and available for playback by 2:00 p.m. Eastern
Time on Thursday, October 30 by dialing 719-457-0820, access code 6460864. The
playback number will be active until Thursday, November 6, at 5:00 p.m. Eastern
Time.
For those wishing to participate via an Internet Broadcast, please access
our Kodak.com Investor Relations webpage at:
http://www.kodak.com/go/invest
The conference call audio will be archived and available for replay on this
site approximately one hour following the live broadcast.
About Kodak
As the world's foremost imaging innovator, Kodak helps consumers,
businesses, and creative professionals unleash the power of pictures and
printing to enrich their lives.
To learn more, visit www.kodak.com, and
our blogs: 1000words.kodak.com, PluggedIn.kodak.com,and GrowYourBiz.kodak.com.
Editor’s Note: Kodak corporate news releases are now offered via RSS feeds.
To subscribe, visit www.kodak.com/go/RSS and look for the
RSS symbol. In addition, Kodak podcasts are viewable at www.kodak.com/go/podcasts. Podcasts
may be downloaded for viewing on iTunes, Quicktime, or other PC-based media
players. Users may also subscribe to Kodak podcasts via the iTunes store by
typing “Kodak Close Up” in the search field at the top of the iTunes Store
window.
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 revenue growth, earnings, cash and payments from
licensing arrangements 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 our
successful:
- execution of the digital growth and profitability strategies, business
model and cash plan;
- alignment of the Company’s cost structure to the new economic
realities;
- execution of our restructuring and rationalization activities;
- implementation of the Company’s plans to tighten its focus on its portfolio
of investments;
- management of the Company’s global shared services model including its
outsourced functions;
- 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 its products against the intellectual property challenges
of others;
- execution of intellectual property licensing programs and other
strategies;
- integration of the Company's businesses to SAP, the Company's enterprise
system software;
- execution of the Company’s planned process driven productivity gains;
- commercialization of the Company’s breakthrough technologies;
- expansion of the Company’s product portfolios in each of its core
businesses;
- ability to accurately predict product, customer and geographic sales mix
and seasonal sales trends;
- management of inventories and capital expenditures;
- integration of acquired businesses and consolidation of the Company's
subsidiary structure;
- improvement in manufacturing productivity and techniques;
- improvement in working capital management and cash conversion cycle;
- continued availability of essential components and services from
concentrated sources of supply;
- performance under the Company’s share repurchase program;
- improvement in supply chain efficiency and dependability; 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;
- uncertainty generated by volatility in the financial 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 postretirement 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;
- changes in market growth;
- 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
Third Quarter 2008 Results Non-GAAP Reconciliations (pdf).
